03/10/2018

Market Update

US tsys weaker, yields ~2bps higher & curve steeper, 10Y 3.08%, heavy volume in TY futures (460k). Risk on session after relief rally in Italian debt as concessions made on deficit talks with EU (2.0% deficit by 2021). German bunds underperforming gilts, 10Y bund/gilt spd 2bps tighter. August ADP employmemt 230k vs  184k. exp. GOCs lower in line with tsys after stronger ADP, 10Y 2.48%. Canada 5Y auction at noon –  $3.0bln new March 2024s with the WI roll 2.4/2.2, which on an interpolated basis would be ~1bp too wide, given the J24/5Y roll is also 2.4/2.2. Ontario 2028 ~1bp tighter 61.5/,  10Y spd 5bps tighter since province emerged last week from blackout, despite $4.6bln across 4 deals.

News headlines

How the U.S. and Canada Ended Their Feud and Clinched a Nafta Deal (Bloomberg) The threats were growing graver and the prospects for a new Nafta deal looked dark. But then each side blinked. The trade accord between the U.S. and Canada that came together Sunday night emerged from a frenzied, 72-hour push that capped 13 months of glacial negotiations, according to U.S. and Canadian officials and other people familiar with the talks. And it happened as President Donald Trump weighed new tariffs after snubbing Canadian Prime Minister Justin Trudeau at the United Nations.

New York Tax Department Probes Trump Taxes From Decades Ago (Bloomberg) New York state tax authorities have opened an investigation into allegations reported in the New York Times that President Donald Trump and his family created their real estate empire through “instances of outright fraud,” evading taxes on hundreds of millions of dollars. “The Tax Department is reviewing the allegations in the New York Times article and is vigorously pursuing all appropriate avenues of investigation,” said James Gazzale, spokesman for Department of Taxation and Finance.

Italian Markets Find Relief After Budget-Deficit Concessions (Bloomberg) Italian markets got some respite after a report that the government bowed to pressure from the European Union to trim its budget-deficit target. Government bonds snapped four days of declines and the FTSE MIB Index of shares headed for the biggest gain in more than a week after the Corriere della Sera reported that the government will seek to contain the shortfall at 2 percent in 2021, down from 2.4 percent.

U.S. Stock Futures Follow Europe Gains; Oil Steady: Markets Wrap (Bloomberg) U.S. equity index futures rose and European stocks climbed as news the Italian government may rein in spending helped soothe investor nerves. The country’s bonds rallied as Treasuries and bunds slipped. Italian debt jumped after four days of selling and the Stoxx Europe 600 Index rebounded from Tuesday’s drop after a Corriere della Sera report that Italy’s draft budget plan will pledge to cut the deficit to 2 percent in 2021, revising the government’s initial proposal. The nation’s Deputy Premier Luigi Di Maio confirmed that ministers had discussed ways to lower the deficit target after 2019. The euro initially jumped but pared the gain through the European session.

Canada PM takes Quebec dairy gamble to preserve big trade deal (Reuters) With his political future at stake, Canadian Prime Minister Justin Trudeau will mount a charm offensive to placate dairy farmers who say he sold them out in order to win approval of a continental trade deal. Compounding Trudeau’s challenges in the influential province of Quebec, where many dairy farmers are based, voters there tossed out one of his allies on Monday in favor of a new center-right party that opposes immigration and supports supply management, as Canada’s dairy protection system is known.

Saudi Arabia, Russia agreed in Sept to lift oil output, told U.S. (Reuters) Russia and Saudi Arabia struck a private deal in September to raise oil output to cool rising prices and informed the United States before a meeting in Algiers with other producers, four sources familiar with the plan said. U.S. President Donald Trump has blamed the Organization of the Petroleum Exporting Countries (OPEC) for high crude prices and called on it to boost output to bring down fuel costs before the U.S. congressional elections on Nov. 6.

Morneau vows to address competitiveness in fall update (BNN) Finance Minister Bill Morneau says he is taking concerns around Canada’s ability to compete and attract business investment into account for his upcoming fall economic update amid ongoing pressures from corporate leaders.   “It is the case that there is investment going on in this country, but we can’t be complacent,” Morneau told BNN Bloomberg in an interview late Tuesday.

Vancouver home sales sink in September as listings hit multi-year highs (BNN) Home sales in Metro Vancouver fell sharply in September as slower sales activity since the spring allowed new listings to accumulate to levels not seen in four years.   There were 1,595 homes sold in the region in September, a 43.5 per cent drop from the 2,821 home sold during same month last year, according to the Real Estate Board of Greater Vancouver. Home sales dropped 17.3 per cent from August when 1,929 home were sold. “Fewer home sales are allowing listings to accumulate and prices to ease across the Metro Vancouver housing market,” Ashley Smith, REBGV president-elect, said in a release.

Overnight markets

Overview: US 10yr note futures are down -0.092% at 118-23, S&P 500 futures are up 0.33% at 2938.25, Crude oil futures are up 0.05% at $75.27, Gold futures are down -0.02% at $1206.7, DXY is up 0.03% at 95.534, CAD/USD is up 0.08% at 0.7793.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.281%	2 Year	2.819%
5 Year	2.404%	5 Year	2.956%
10 Year	2.478%	10 Year	3.073%
30 Year	2.465%	30 Year	3.228%

US Economic Data

7:00 AM	MBA Mortgage Applications, Sep 28th 0.0% (2.9% prior)
8:15 AM	ADP Employment Change, Sep est 184k (163k prior)
9:45 AM	Markit US Services PMI, Sep est 53.0 (52.9 prior)
	Markit US Composite PMI, Sep (53.4 prior)
	ISM Non-Manufacturing Index, Sep est 58.0 (58.5 prior)

Canadian Economic Data

There is no Canadian economic data for today.