Market Update US tsys lower on above avg volume (335k TY), 10Y close to 3.0% (2.99% +2bps),little reaction to April ADP (204k vs 198k) – focus on FOMC meeting with the Fed widely expected to leave rates unch. US quarterly refunding announcement this morning – the US Treasury expected to boost auction sizes across all maturities. Core Euro bonds lower, led by UK gilts , yields 4-6bps higher. Risk on tone GOCs opening weaker, underperforming tsys by 1-1.5bps – Poloz sounding a note of caution over raising rates in the face of the ‘sheer size’ of Canadas debt burden, while at the same time noting that the process of removing accommodation is made easier in a growing economy.
News headlines
The Fed Has a Tricky Inflation Issue to Navigate (Bloomberg) Federal Reserve officials have a tricky problem to navigate at this week’s meeting: how to describe inflation that has just bounced back to their elusive 2 percent target. The policy-setting Federal Open Market Committee is expected to leave interest rates unchanged at its two-day meeting in Washington. How it opts to describe price pressures will shape expectations for the pace of future rate increases. A policy statement is scheduled for 2 p.m. on Wednesday.
Euro-Area Factories Fret About Euro as Economic Growth Cools (Bloomberg) Euro-area economic growth slowed in the first quarter, posing a challenge for the European Central Bank as it contemplates paring back monetary stimulus measures. The 0.4 percent expansion was the weakest in six quarters and followed a reading of 0.7 percent at the end of 2017. While temporary factors such as bad weather played a part, another report showed manufacturing continued to cool this quarter and some firms are concerned about the stronger euro.
Mueller to Cite Subpoena Power If Trump Won’t Do Interview (Bloomberg) Prosecutors working for Robert Mueller have made clear to Donald Trump’s legal team that the special counsel would consider a subpoena compelling the president to testify before a grand jury if he refuses to participate in a voluntary interview, according to two current U.S. officials.
Stocks Are Mixed, Treasuries Retreat Before Fed: Markets Wrap (Bloomberg) European stocks advanced and U.S. futures drifted as many investors returned from holidays to digest the latest earnings reports and shift their focus to the Federal Reserve’s imminent rate decision. The dollar nudged lower and Treasuries fell.
Canada economy grows 0.4 percent, first-quarter could be better than forecast (Reuters) The Canadian economy grew 0.4 percent in February, Statistics Canada said on Tuesday, a sign that first-quarter growth could outperform the Bank of Canada’s relatively weak expectations. Analysts in a Reuters poll had forecast February gross domestic product would increase by 0.3 percent after shrinking 0.1 percent in January. Even if March’s GDP figures are flat, Statistics Canada analysis shows that annualized first quarter growth would be 1.6 percent, greater than the 1.3 percent in the Bank of Canada’s latest forecast on April 18.
Asia sees signs of export weakness before key U.S.-China trade talks (Reuters) Manufacturing activity remained relatively solid in major Asian economies such as China and Japan in April, but exports showed signs of weakness across the region, a worrying development given heightened Sino-U.S. trade tensions. High-level U.S. and Chinese officials meet in China this week, with trade expected to be top of the agenda as both sides have threatened reciprocal tariffs on hundreds of billions of dollars worth of imports.
Stephen Poloz delivers wake-up call to most indebted Canadians (BNN) Bank of Canada Governor Stephen Poloz says the central bank is keeping a close eye on a small group of disproportionately indebted Canadians as it mulls the timing and impact of its next interest rate hike. In a speech in Yellowknife Tuesday, Poloz sounded the alarm, stating that about eight per cent of indebted households owe 350 per cent or more of their gross annual income, and that group is carrying about a fifth of total Canadian household debt.
Overnight markets
Overview: US 10yr note futures are down -0.065% at 119-10, S&P 500 futures are up 0.06% at 2653.75, Crude oil futures are up 0.22% at $67.4, Gold futures are up 0.22% at $1309.7, DXY is down -0.06% at 92.398, CAD/USD is down -0.18% at 0.7796.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.947% | 2 Year | 2.517% |
| 5 Year | 2.189% | 5 Year | 2.829% |
| 10 Year | 2.376% | 10 Year | 2.989% |
| 30 Year | 2.443% | 30 Year | 3.152% |
US Economic Data
| 7:00 AM | MBA Mortgage Applications, Apr 27th -2.5% (-0.2% prior) |
| 8:15 AM | ADP Employment Change, Apr 204k est 198k (241k prior) |
| 14:00 PM | FOMC Rate Decision (Upper Bound), May 2nd est 1.75% (1.75% prior) |
| FOMC Rate Decision (Lower Bound), May 2nd est 1.50% (1.50% prior) |
Canadian Economic Data
| 8:30 AM | MLI Leading Indicator MoM, Mar 0.1% (0.2% prior) |
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, Hugues Savard
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230