02/10/2018

Market Update US tsys higher, yields 1-2 bps lower across the curve, 10Y 3.058% (-2.6bps), heavy volume in TY futures (480k). Tsys benefitting from Italy related FTQ bid along with bunds/gilts. Italian 2Y yield 12 bps higher on comments from the newly elected govt suggesting Italy would be better off outside the EU, with the budget allowing for a 2.4% deficit target above EU 2% guidelines. In Canada, GOCs higher in line with tsys, 10Y 2.485%, yields ~1bp lower after yesterday’s post NAFTA drubbing, which saw 2Y yields rise the most since May 30th. Quebec spreads unch after historic CAQ majority victory, likely status quo in terms of economic policy, QC/Ont ~0.2bps tighter, lifted in 10s & 30s.

News headlines

Canada’s Quebec shifts right as CAQ set to win majority (Reuters) The center-right Coalition Avenir Quebec is on track to win power for the first time in Canada’s Quebec province on Monday, dealing a blow to the Liberal incumbents and allowing the party to make good on its promises to curb immigration. The business-friendly CAQ is expected to win a majority of seats in Canada’s second most populous province, according to early results from Elections Quebec and network projections.

Canada, buoyed by trade deal, to push U.S. on metal tariffs (Reuters) Canada, buoyed by a last-minute continental trade deal it sealed with the United States and Mexico, is pressing Washington to remove steel and aluminum tariffs, senior Canadian officials said on Monday. The agreement, reached on Sunday night, protects Canada’s automotive industry from potentially devastating U.S. tariffs, but includes no assurance that Washington will lift punitive measures it imposed on Canadian and Mexican steel and aluminum in June.

Trump Clears Deck for China Trade War With New Nafta Deal (Bloomberg) President Donald Trump looks to be preparing for a potentially protracted economic war with China by clearing the decks of disputes with America’s other trading competitors. In just the last few weeks, he’s struck a last-minute deal with Canada and Mexico, signed a trade agreement with South Korea and convinced Japan to begin bilateral economic negotiations. The North American accord also includes provisions seemingly aimed at keeping Chinese products out of the region.

Kavanaugh College Visit to Bar Erupted in Fight, Classmate Says (Bloomberg) Future Supreme Court nominee Brett Kavanaugh and two fellow Yale University students were in an off-campus bar back in 1985. They had just come from seeing the English reggae band UB40 at a nearby venue in New Haven, Connecticut, when they saw a man who resembled the lead singer. The man told the trio he wasn’t the singer and brusquely told them to stop looking at him. Kavanaugh couldn’t let the comment pass, according to one of the two friends with Kavanaugh that night.

Euro Drops as Italy Worries Simmer; Stocks Decline: Markets Wrap (Bloomberg) A downbeat mood settled over markets on Tuesday, as fears surrounding the populist Italian government’s fiscal plans topped a list of reasons for caution. The euro dropped a fifth day, European stocks and U.S. futures followed Asian declines, while Treasuries and bunds advanced. The common currency touched the weakest in six weeks after the head of Italy’s lower house budget committee said the nation would have solved its fiscal problems with its own currency, and the leader of the European Commission warned of a Greek-style crisis. Reassurances that the country has no plans to ditch the euro did little to calm nerves, and Italian bonds extended a recent slump, while the region’s safer “core bonds” climbed. The Stoxx Europe 600 Index fell for only the second time in six days as equities in Italy declined.

Swiss Chalet and other big restaurant chains hit by malware outbreak (BNN) Recipe Unlimited Corp. (RECP.TO) says some of its Swiss Chalet, Harvey’s, East Side Mario’s and other restaurants are experiencing a partial network outage after a malware outbreak. The company formarly known as Cara Operations says it learned of the outbreak on Friday and as a precaution took a number of its systems offline and suspended internet access to affected locations. Some restaurants have been unable to process credit and debit card transactions as a result, though all of them can manually process credit card charges.

Bank of Canada studying issues around designing a digital currency (BNN) The Bank of Canada is looking at the key questions around the design of a digital currency and the issues surrounding such an idea, a senior Bank of Canada official said Monday.

However, deputy governor Timothy Lane told a University of Calgary audience that unless the risks associated with a central bank digital currency can be managed through appropriate design, the bank would not recommend issuing such a currency. “The design of a CBDC has important implications for its risk and benefits,” Lane said according to the prepared text of his speech released in Ottawa.

Amazon to Raise Its Minimum U.S. Wage to $15 an Hour (WSJ) Amazon.com Inc. on Tuesday said it was raising the minimum wage it pays all U.S. workers to $15 an hour, a move that comes as the company faced increased criticism about pay and benefits for its warehouse workers. The new minimum wage will kick in Nov. 1, covering more than 250,000 current employees and 100,000 seasonal holiday employees. The company said it also will start lobbying Congress for an increase in the federal minimum wage, which was set nearly a decade ago and is currently $7.25 an hour.

Tax Cuts Provide Limited Boost to Workers’ Wages (WSJ) U.S. companies are putting savings from the corporate tax cut to use, but only a fraction of it is flowing to employees’ wallets, new data show. In the months after the December tax-code overhaul that lowered the corporate rate to 21% from 35%, dozens of companies such as Walmart Inc. and FedEx Corp. announced one-time bonuses and wage increases for hourly workers. Those moves earned praise from the Trump administration as evidence the cuts were quickly reaching many Americans.

Overnight markets

Overview: US 10yr note futures are up 0.079% at 118-25, S&P 500 futures are down -0.18% at 2924.75, Crude oil futures are up 0.31% at $75.53, Gold futures are up 0.23% at $1194.4, DXY is up 0.32% at 95.602, CAD/USD is up 0.14% at 0.7793.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.281%	2 Year	2.811%
5 Year	2.41%	5 Year	2.948%
10 Year	2.491%	10 Year	3.063%
30 Year	2.469%	30 Year	3.22%

US Economic Data

10/02

Wards Total Vehicle Sales, Sep est 16.80m (16.60m prior)

Canadian Economic Data

There is no Canadian economic data for today.