06/03/2018

Market Update US tsys trading weaker with core EGBs , US 10Y 2.895 (+1.5bps) pressured by ‘risk on’ tone amid headlines that North Korea is open to denuclearization while Trump tariff’s facing stiffer opposition, while the EU is prepares to impose tariffs of their own. European equities +0.70%, S&P futures +12, crude extending gains +1.0% after on top of yest 2.2% gain.  The USD index 0.56% lower, Euro higher for a 4th day @ 1.24. CVS $45bln mega deal to fund the purchase of CVS Health /Aetna expected today.  GOCs opening lower, underperforming tsys past 5Ys, reversing  ~1bp of yesterday’s 3bp narrowing which brought Can/US to new eight month lows. Mondelez (Baa1/BBB) priced $600mln 7Y maple yest @ 118.6, which looked cheap basd on USD MDLZ Feb 24s swapping back @ GOCs +90, so even allowing for 15bps in credit curve 118.6 is ~10bps.

News headlines

EU Raises Stakes for Trump by Aiming Levies at GOP Heartland (Bloomberg) The European Union is preparing punitive tariffs on iconic U.S. brands produced in key Republican constituencies, raising political pressure on President Donald Trump to ditch his plans for taxing steel and aluminum imports. Targeting 2.8 billion euros ($3.5 billion) of American goods, the EU aims to apply a 25 percent tit-for-tat levy on a range of consumer, agricultural and steel products imported from the U.S. if Trump follows through on his tariff threat, according to a list drawn up by the European Commission and obtained by Bloomberg News. The list of targeted U.S. goods — including motorcycles, jeans and bourbon whiskey — sends a political message to Washington about the potential domestic economic costs of making good on the president’s threat.

BOJ May Be Thinking But Not Doing Exit in 2019, Kuroda Says (Bloomberg) Governor Haruhiko Kuroda made clear on Tuesday that while the Bank of Japan may find itself thinking about exiting monetary stimulus in the 2019 fiscal year, this doesn’t mean it will actually be doing it then. His comments, during a second confirmation hearing in Japan’s parliament, follow remarks on March 2 that sent the yen surging and pushed yields on Japanese sovereign debt higher across the curve. 

Italy’s President Is Playing for Time (Bloomberg) From his study, Sergio Mattarella looks out on a prize collection of cacti in the manicured gardens of the presidential palace in Rome. After Italians elected a hung parliament with rival populist forces each claiming the right to lead, the head of state faces an equally prickly search for a new government. Matteo Salvini’s anti-migrant League supplanted Silvio Berlusconi as the dominant force on the Italian right, but their coalition is still short of an outright majority. Luigi Di Maio says the Five Star Movement’s status as the single biggest party gives him the right to govern. Though he doesn’t have the votes either.

Stocks Rise on Speculation Trade Threat Is Easing: Markets Wrap (Bloomberg) U.S. stocks rose with the dollar, while Treasuries fell as signs mounted that President Donald Trump’s tough tariff talk may not translate into the most severe protectionist policies. The Dow Jones Industrial Average added more than 300 points as megacaps that bore the brunt of the selling late last week led gains, while domestically-focused small caps lagged behind. The S&P 500 Index advanced for a second day after hedge fund billionaire Ray Dalio called the threat of a trade war “political show” and House Speaker Paul Ryan urged the president to reconsider tariffs on steel and aluminum. Trump when asked about the congressman’s comment said he won’t back down on trade.

OPEC-Shale Gathering Seen Rich in Platitudes: CERAWeek Update (Bloomberg) CERAWeek by IHS Markit kicked off Monday afternoon, a five-day gathering in Houston of some of the energy industry’s biggest names. This year, some of the highlights include appearances by the CEO of Saudi Aramco and the heads of BP Plc, Royal Dutch Shell Plc, ConocoPhillips, Petroleos Mexicanos and Petroleo Brasileiro SA. In addition, the OPEC Secretary General and oil ministers from Nigeria, Qatar, the United Arab Emirates and Ecuador are scheduled to speak.

Toronto home sales slump in February but prices stabilize (Reuters) Toronto home sales slumped in February from a year ago as the market continued to be dampened by tighter mortgage rules and higher borrowing costs, though demand for condominiums helped prices stabilize, data showed on Tuesday.

Trade threats will likely amplify Poloz’s caution on rates (BNN) Bank of Canada Governor Stephen Poloz’s preoccupation with uncertainty probably means a longer pause on interest rates, in a world of fraying trade alliances and volatile markets. The central banker is expected to leave his benchmark borrowing cost unchanged at 1.25 per cent at a rate decision Wednesday at 10 a.m, according to all 21 economists surveyed by Bloomberg News, with forward contracts pricing in just a 13 per cent chance of a hike.

Overnight markets

Overview: US 10yr note futures are down -0.13% at 119-28, S&P 500 futures are up 0.48% at 2731.5, Crude oil futures are up 0.99% at $63.19, Gold futures are up 0.77% at $1330.1, DXY is down -0.6% at 89.543, CAD/USD is down -0.57% at 0.7758. 

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.763% 2 Year 2.25%
5 Year 2.028% 5 Year 2.66%
10 Year 2.223% 10 Year 2.895%
30 Year 2.394% 30 Year 3.162%

US Economic Data

10:00 AM Factory Orders, Jan est -1.4% (1.7% prior)
  Factory Orders Ex trans, Jan (0.7% prior)
  Durable Goods Orders, Jan est -3.6% (-3.7% prior)
  Durables Ex Transportation, Jan (-0.3% prior)
  Cap Goods Orders Nondef Ex Air, Jan (-0.2% prior)
  Cap Goods Ship Nondef Ex Air, Jan (0.1% prior)

Canadian Economic Data

10:00 AM Ivey Purchasing Managers Index SA, Feb (55.2 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