Market Update
US tsys under pressure, yields 4-7bps higher led by the short end, tsy 2s30s 3bps flatter on heavy volume in TY futures (~600k). Big day for Fedspeak with Chair Powell speaking at 10:00ET as well as Brainard and Williams. US equity futures higher (S&P +17), Mexican president saying talks are going well with the US after constructive comments from the Mexican foreign minister. Aussie bonds little changed after RBA cuts rates 25bps as expected. Core Euro bonds mixed, UK gilts lower while bunds are slightly higher. In Canada, GOCs are lower, lagging the pullback in tsys by 1bp, no data in Canada yet expect provi issuance all in yields are at the lows, 10Y ontario spreads barely 4bps wider over the month despite a 35bp rally in 10Y yields.
News headlines
Mexico draws red line on asylum as Trump tariff risk rises (Reuters) Mexico said on Monday it would reject a U.S. idea to take in all Central American asylum seekers if it is raised at talks this week with the Trump administration, which has threatened to impose tariffs if Mexico does not crack down on illegal immigration. President Donald Trump said last week he would impose a blanket tariff on Mexican imports on June 10 to try to pressure Mexico to tackle large flows of mostly Central American migrants passing through en route to the United States. The move has spooked global markets worried about a new front in the U.S. trade war.
Powell to open Chicago conference as rate cut talk intensifies (Reuters) Federal Reserve Chairman Jerome Powell gives opening remarks on Tuesday at a monetary policy conference focused on long-term issues, but set now to the backdrop of intensifying market speculation that global trade worries may force an imminent Fed rate cut. While Powell’s remarks may well stay true to the theme of the two-day session at the Chicago Federal Reserve, organized as an exploration of broad monetary policy strategy and methods, investors will be attuned to any hint of his developing economic outlook. Since the Fed last met, President Donald Trump has slapped new 25 percent tariffs on $200 billion of Chinese imports, taken aim at Chinese telecoms giant Huawei and extended the use of tariffs to achieve unrelated goals by threatening new import taxes on Mexico unless immigration slows.
Ottawa announces new measures to prevent steel dumping (GlobeandMail) The Canadian government announced new measures Monday to prevent the dumping of low-priced foreign steel into the Canadian market as it seeks to maintain its privileged trade status with the United States. Finance Minister Bill Morneau said the measures are necessary because Canada risks becoming a target for steel dumping following last month’s agreement between Canada and the U.S. to eliminate steel and aluminum tariffs on trade between the two countries.
Donald Trump’s trade war has already cost investors up to $7 trillion (FP) Trump’s effort to reorient the U.S.’s place in world trade could end up being much more costly than most people think.
Morgan Stanley sees recession within year if trade war gets any worse (FP) Wall Street’s biggest banks lined up to warn investors of growing recession risks from the escalating trade war between the U.S. and China. A global recession could start within nine months if President Donald Trump imposes 25 per cent tariffs on an additional US$300 billion of Chinese exports and Beijing retaliates, according to Morgan Stanley. Separately, JPMorgan Chase & Co. said the probability of a U.S. recession in the second half of this year had risen to 40 per cent from 25 per cent a month ago.
Australia dodges Trump tariffs on metals, thanks to U.S. politician (FP) Defense, State departments dissuade President from straining relationships with allies important to U.S. defence. The Trump administration considered imposing tariffs on imports from Australia last week, but decided against the move amid fierce opposition from military officials and the State Department, according to several people familiar with the discussions.
U.K. Retail Crisis Deepens as Stores Report Plunging Sales (Bloomberg) U.K. retail sales plunged in May, reinforcing a gloomy picture for the industry that’s seen a number of high-profile businesses run into trouble. Also, U.K. Construction Declines at Sharpest Pace in More Than a Year.
Canadian dollar rallies to six-day high as investors dump the greenback (GlobeandMail) The Canadian dollar strengthened to a nearly one-week high against its U.S. counterpart on Monday as rising expectations of a Federal Reserve interest rate cut this year weighed on the greenback. The U.S. dollar tumbled against a basket of major currencies after St. Louis Federal Reserve President James Bullard said an interest rate cut “may be warranted soon,” given the rising economic risk posed by global trade tensions as well as weak U.S. inflation. “It’s a broader move on the U.S. dollar following these comments,” said Simon Côté, managing director, risk management solutions at National Bank Financial. “The market is getting what it was waiting for, a reason to take some profit, sell some (U.S.) dollars.”
Overnight markets
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.385% | 2 Year | 1.904% |
| 5 Year | 1.322% | 5 Year | 1.899% |
| 10 Year | 1.455% | 10 Year | 2.121% |
| 30 Year | 1.728% | 30 Year | 2.575% |
US Economic Data
| 10:00 AM | Factory Orders, Apr Survey: -1.00% Prior: 1.90% |
| Factory Orders Ex Trans, Apr – Prior: 0.80% | |
| Durable Goods Orders, Apr F – Prior:-2.10% | |
| Durables Ex Transportation, Apr F – Prior: 0.00% | |
| Cap Goods Orders Nondef Ex Air, Apr F Prior: -0.90% | |
| Cap Goods Ship Nondef Ex Air, Apr F – Prior: 0.00% |
Canadian Economic Data
There is no CDA economic data for today.
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, Émile Bordeleau
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilieres Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230