Market Update

Tsys sharply lower yields 3-5 bps higher wit the 10Y 2.435% (+4.3bps). Tsys fell to the lows of the o/n range after strong German CPI data and have accelerated lower despite less than expected Jan core PCE (1.9% y/y vs 2.0%).  Selling started late yesterday aft on hawkish comments from Fed Dudley & Williams , March rate hike prob rising to 80% from 50%, volumes on the TU (2Y) future ~4x avg after fedspeak. Selling in TY futures accelerating overnight as equity futures rose on Trump risk on rally, outlines of $1trln infrastructure spending. Bunds weaker, the 10Y bund contract worst day since Jan 25th on heavy volume. GOCs lowers on par the decline in tsys. Yesterday aft saw index buyers come in and push spreads 5-7 bps tighter as the US sold off on hawkish fed, with 10s30s 1.5bps flatter @ 71.5 as solid bid emerged for longs post 4:00pm. This morning longs outperforming on the selloff, 10s30s 70/69 and off the run long rolls getting lifted (37/33s, 29/26). BOC at 10:00am, expected to retain cautious tone despite signs the economic rebound is gaining momentum, inflation pressures building thou mostly due to strength in energy prices. The BOC auctions $3.0bln in reopened June 27s tommorrow with the J27/10Y roll 11.7/11.6 fairly steady even as the 10Y roll (26/25) has widened considerably (3bps) over the past three months. 10Y absolute yields back to the middle of the range 1.60-1.80% after the move yest & this morn. Provis ended month end yest better bid  , 2 deals Alberta 10s & mani longs.

News headlines 

Focus Turns to Fed as Dollar Gains, Bonds Drop: Markets Wrap (Bloomberg) Investors moved on from President Donald Trump’s address to Congress, shifting their focus to the timing of a U.S. rate increase as the dollar strengthened, stocks advanced and bonds fell. Robust factory data from China spurred gains in metal prices. The Bloomberg Dollar Spot Index climbed the most in a month, the yield on 10-year Treasuries rose to a week-high and European banking stocks surged after odds jumped for a Federal Reserve rate increase this month. Shares of commodity producers found support from a report indicating improving health for Chinese manufacturing which also helped prices for raw material exports.

In speech, Trump tries to turn from divisive to deal-maker (Reuters) U.S. President Donald Trump showed a different side in his first address to Congress. This Trump was part deal-maker, part salesman, asking for unity and trying to repackage his populist message in more palatable terms

Oil inches up as OPEC sticks to output pledges (Reuters) Oil edged higher on Wednesday as investors took heart from strict OPEC compliance with its pledge to cut output, although evidence of increasing U.S. production capped gains. The Organization of the Petroleum Exporting Countries reduced its oil output for a second month in February, a Reuters survey found, showing the exporter group has boosted already strong compliance to around 94 percent.

China February official manufacturing PMI rises to 51.6, beats forecasts (Reuters) Activity in China’s manufacturing sector expanded faster than expected in February, an official survey showed on Wednesday. The official Purchasing Managers’ Index (PMI) rose to a three-month high of 51.6 in February, compared with the previous month’s 51.3, and above the 50-point mark that separates growth from contraction on a monthly basis.

German inflation hits 4-1/2 year high in February (Reuters) German inflation accelerated further in February, reaching its highest level in four-and-a-half years and surpassing the European Central Bank’s price stability target of just under 2 percent, preliminary data showed on Wednesday. German consumer prices, harmonized to compare with other European countries (HICP), rose by 2.2 percent on the year after an increase of 1.9 percent in January, the Federal Statistics Office said.

Fed officials jolt market with talk of pending interest rate hike (TheGlobeAndMail) A handful of Federal Reserve policy makers on Tuesday jolted markets into higher expectations for a March U.S. interest rate increase, with comments that suggested rate-setters are worried about waiting too long in the face of pending economic stimulus from Washington.

National Bank’s profit handily beats estimates (TheGlobeAndMail) National Bank of Canada reported a better-than-expected quarterly profit on Wednesday, largely boosted by its wealth management and personal and commercial businesses. Canada’s sixth-largest bank said net income in its personal banking and commercial business rose 18.3 per cent to $213-million, helped by higher personal mortgage lending.

Overnight markets 

Overview: US 10yr note futures are down -0.727% at 123-22, S&P 500 futures are up 0.74% at 2380.25, Crude oil futures are up 0.3% at $54.17, Gold futures are down -1.05% at $1240.7, DXY is up 0.77% at 101.9, CAD/USD is up 0.2% at 0.7503.

US Economic Data

8:30 AM Personal Income, Jan, 0.4%, est. 0.3% (prior 0.3%)
  Personal Spending, Jan, 0.2%, est. 0.3% (prior 0.5%)
  PCE Core, m/m, 0.3%, est. 0.3% (prior 0.1%)
  PCE Core, y/y, 1.7% est. 1.7% (prior 1.7%)
10:00 AM ISM Manufacturing, Feb, est. 56.2 (prior 56.0)
  ISM Prices Paid, Feb, est. 68.0 (prior 69.0)
  Construction Spending, m/m, Jan, est. 0.6% (prior -0.2%)

Canadian Economic Data

7:00 AM MLI Leading Indicator, m/m, Jan, 0.6% (prior 0.6%, revised 0.7%)
8:30 AM Current Account Balance, 4Q,  -$-10.73b , est. -$9.75b (prior -$18.30b, revised -$19.75b)
9:30 AM Markit Canada Manufacturing Index, Feb, (prior 53.5)
10:00 AM Bank of Canada Rate Decision, Mar 1, est. 0.50% (prior 0.50%)


Disclosure and Disclaimer

The following sources of information have been, or may have been, used partially or in their entirety to compile the herein provided CTI Capital Securities Inc. (“CTI Capital”) ‘Morning Comments.’ CTI Capital believes these sources to be generally reliable, however, as said sources are varied and from third parties, CTI Capital cannot guarantee the accuracy or completeness of said information: Canadian Press (CP); Bloomberg News (BN); Wall Street Journal (WSJ); Stone & McCarthy Research Associates (SMRA); New York Times (NYT); Financial Times (FT); Market News International (MNI); Globe and Mail; Associated Press (AP); CNW Group (CNW); Reuters; Business News Network (BNN); Market Watch; and others.

Ivan Greenstein, Stephan Buu, David Leclair-Legault

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230