Market Update
US tsys mixed, short end yields slightly higher, 30Y 2bps lower in continuation of flattening move with 2s10s ~14bps the narrowest since July 2007, with inversion at the short end (2s5s, 3s5s). GOC curve also flattening led by longs – large relative move in 10s30s -1bp @ 10.2bps, 2s5s under 3bps, several economists now questioning timing of next BOC rate hike in view of latest weak Q3 GDP and Alberta oil production cuts. Also of note yesterday’s 9.4% decline in Cdn auto sales, down for the ninth month in a row. Yesterday was volatile GOCs erasing early losses spurred by the ‘risk on’ rally in equities and crude to reach new highs in the afternoon in bull flattening move led by the long end, with 4 block trades in CGBs after 2:30 -all buyers, as well as short covering. The 10Y traded below 2.25% for the first time since Sep 7th while the 10s30s curve narrowed 0.8bps to close @ 11.7. Quebec/Ontario tighter (after latest Quebec economic update – $1.7bln surplus projected for 2018/19 vs $1.3bn prev. on higher than exp growth (2.5% vs 2.1%), additional $8bln being used to pay down debt over 2 yrs.
News headlines
Trump’s Advisers Struggle to Explain Deal He Says He Cut With Xi (Bloomberg) President Donald Trump left his top advisers scrambling on Monday to explain a trade deal he claimed he’d struck with China to reduce tariffs on U.S. cars exported to the country — an agreement that doesn’t exist on paper and hasn’t been confirmed in Beijing. In the day after Trump announced the deal in a two-sentence Twitter post, the White House provided no additional information. At a briefing in Beijing, a spokesman for the foreign ministry declined to comment on any changes to car tariffs.
Here Are Some Signs U.S. Inflation Is Drifting Below Fed’s Goal (Bloomberg) Just when you thought U.S. inflation was stabilizing around the Federal Reserve’s 2 percent goal, it’s getting pulled back down again. In contrast to the resounding success on their maximum-employment target, policy makers may have to wait a while before declaring victory on inflation as recent reports show price pressures are cooling off instead. The slowdown — covering the Fed’s preferred price gauge, surveys of consumers and a poll of manufacturers — is hard to ignore at a time central bank officials emphasize that their decisions will be increasingly data dependent. The path of 2019 interest-rate hikes looks less certain beyond a widely-expected move in December, which would be the fourth this year.
Traders Bet Bank of Canada Rate-Hike Pause May Come Even Sooner Than Fed’s (Bloomberg) Money-market traders, already having written off a hike at Wednesday’s Bank of Canada meeting, are beginning to doubt that policy makers will pull the trigger next month either. While the Federal Reserve is widely expected to proceed with another quarter-point interest-rate increase in two weeks, overnight index swaps are pricing in just 16 basis points of tightening by the BOC’s Jan. 9 meeting, down from 27 basis points less than a month ago.
Stocks Drop as Trade Hopes Fizzle; Treasuries Rise: Markets Wrap (Bloomberg) U.S. equity futures dropped and European shares tracked declines in Asia as investors reined in their optimism over any breakthrough in the trade war. Treasuries gained and the dollar retreated. Contracts on the S&P 500, Dow Jones and Nasdaq indexes all pointed to U.S. shares giving up a chunk of Monday’s gains at the New York open, while the Stoxx Europe 600 Index slipped led by automakers. Stocks tumbled in Japan and dropped in Australia and South Korea after media appearances from Trump administration officials shed little light on the specifics of any Sino-American trade agreement. Shares in Shanghai and Hong Kong fared better, fluctuating before ending higher as the yuan climbed.
Quebec projects C$1.7 billion surplus, accelerates debt repayment in 2018-2019 (Reuters) Quebec’s new center-right government is projecting a C$1.7 billion ($1.3 billion) surplus in 2018-19 on higher revenues, compared with a balanced budget expected by the previous Liberal government in March, a fiscal update on Monday showed. The Coalition Avenir Quebec government said it would also spend C$10 billion over two years to pay down the Canadian province’s debt, instead of over five years under the previous government.
Canada’s construction steel buyers face tariff ‘roulette’ (Reuters) Canadian steel buyers are racing to get construction steel into the country to claim first-come, first-serve exemptions from tariffs that were meant to stabilize the country’s market in the wake of U.S. President Donald Trump’s metals tariffs. With steel prices already high, the companies that fabricate steel structures used in major building projects say the import controls, which cover at least 600,000 tonnes of steel, are making it even more difficult to operate because they cannot predict the price of basic materials.
Bank of Montreal raises dividend as profit surges in Q4 (BNN) Bank of Montreal hiked its dividend as it reported a fourth-quarter profit that jumped 38 per cent compared with a year ago and beat analyst estimates. The bank says it will now pay a quarterly dividend of $1 per share, up four cents from its previous payment. The increase in payment to shareholders came as BMO reported its net income for the three months ended Oct. 31 rose to $1.7 billion or $2.57 per diluted share, up from to $1.23 billion or $1.81 in 2017.
Light vehicle sales down 9.4% in November for ninth month of declines (BNN) DesRosiers Automotive Consultants Inc. says light vehicle sales fell 9.4 per cent in November compared with last year for a ninth straight month of declines. The consultancy says a total of 143,668 vehicles were sold in the month, compared with 158,653 a year ago, as passenger car sales fell 11.4 per cent and light truck sales were down 8.7 per cent. DesRosiers says that with the light vehicle market down by about 44,000 units so far compared with last year, it’s almost certain that this year will be the first since 2009 that there won’t be year-over-year growth in the market.
Overnight markets
Overview: US 10yr note futures are up 0.157% at 119-25, S&P 500 futures are down -0.33% at 2781.5, Crude oil futures are up 1.95% at $53.98, Gold futures are up 0.43% at $1244.9, DXY is down -0.57% at 96.489, CAD/USD is down -0.13% at 0.7588.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.161% | 2 Year | 2.823% |
| 5 Year | 2.192% | 5 Year | 2.819% |
| 10 Year | 2.239% | 10 Year | 2.961% |
| 30 Year | 2.341% | 30 Year | 3.232% |
US Economic Data
There is no US economic data for today.
Canadian Economic Data
| 8:30 AM | Labor Productivity QoQ, 3Q est 0.2% (0.7% 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
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilieres Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230