Market Update Tsys trading weaker, near lows of o/n session on heavy volume (490k TY), 10Y 2.955 (+2.7bps), USD index lower, thou US$/Yen is higher closing in on 200D MA a two-week high.  Core EGBs sharply lower on more hawkish ECB talk – ECB Praet and Weidmann confirming reports next week’s meeting is ‘live’ in terms of discussing QE exit, 10Y bund 8bps higher, gilts lower outperforming bunds on news opposition labor party proposing to stay in the EU single market after Brexit. GOCs lower, 1-2 bps wider vs tsys, curve 1bp steeper. BOC auctions $3bln in reopened 1.75 August 1 2020s with the toll to 2Y 3.7bps vs 3bps for the current 2Y roll (May/Feb). 2s yields are ~3bps lower than the last auction on May 9th (1.95% vs 1.985%)  after reaching close to 2.10% on May 18th, buoyed by FTQ rally on Italy and a lower Q1 GDP print. 

News headlines

U.S. and China Haggle Over Trade Gap, ZTE (Bloomberg) The U.S. and China continued to haggle over the shape of a deal to fend off an impending trade war, with China offering to boost purchases of American goods and the U.S. finalizing a deal to allow China’s ZTE Corp. to resume purchases from American suppliers. Ahead of a mid-June deadline for imposing tariffs on Chinese imports, China has offered to boost purchases of U.S. goods by about $25 billion this year, according to two people familiar with the matter, who spoke on condition of anonymity because the negotiations aren’t public. Crude oil, coal and farm products are among the goods that the Chinese are willing to buy more of, according to the people briefed on the talks.

ECB Chief Economist Confirms June Meeting Is Crucial for QE Decision (Bloomberg) European Central Bank policy makers anticipate holding a pivotal discussion at their meeting next week that could conclude with a public announcement on when they intend to cease asset purchases, according to euro-area officials familiar with the matter. President Mario Draghi’s Governing Council is likely to treat the June 14 gathering in Latvia as an opportunity to debate winding down bond-buying, said the officials, who asked not to be named because such matters are confidential. Purchases are currently intended to run until at least September.

India Joins Emerging Markets by Raising Key Interest Rate (Bloomberg) India’s central bank raised its benchmark interest rate for the first time since 2014 to curb rising price pressures and calm financial markets as policy tightening in the U.S. rattles emerging markets. All six members of the Monetary Policy Committee voted to increase the repurchase rate to 6.25 percent from 6 percent, the Reserve Bank of India said in a statement in Mumbai on Wednesday. The move was predicted by 14 of the 44 economists in a Bloomberg survey, with the rest seeing no change.

Stocks Rise as Trade Fears Ebb; Bonds Drop on ECB: Markets Wrap (Bloomberg) Stocks across the globe extended gains on signs that major economies will step back from the brink of a trade war. European bonds declined and the euro strengthened amid hawkish messages from the region’s central bank.U.S. futures advanced following gains across Asia after China was said to offer to buy more American products and on reports the Treasury Department favors less sweeping investment limits on the Asian nation. Most commodities rallied.

Canada labor productivity falls 0.3 percent in first quarter (Reuters) The labor productivity of Canadian businesses dipped in the first quarter as business output decelerated even as hours worked picked up, Statistics Canada reported on Tuesday. Labor productivity fell 0.3 percent in the quarter after rising by an unrevised 0.2 percent in the fourth quarter. Growth of business activity cooled to 0.2 percent from the previous quarter’s 0.4 percent gain, dampened by a slowdown in output among companies in the service sector, particularly in real estate and retail.

Air Canada, Air China sign deal to expand cooperation (Reuters) Air Canada and Air China Ltd entered a joint venture on Wednesday, with the Canadian carrier saying the deal would significantly increase its presence in the Chinese market which is set to be the world’s largest by 2022. The two airlines said the joint venture, which they have been discussing since 2014, would allow them to increase commercial cooperation on flights. It is also Air China’s first such deal with a North American airline.

Trade uncertainties have led to end of ‘Goldilocks years’: Caisse CEO (BNN) The head of Quebec’s largest pension fund said investors have emerged from the “Goldilocks years” of 2016 and 2017 into an uncertain period for businesses due to a number of global trade tensions. “2018 is a very different world and we’re seeing it in the volatility this year,” said Michael Sabia, president and chief executive of Caisse de dépôt et placement du Québec, in an interview with BNN Bloomberg Tuesday.

Tim Hortons pulls back on U.S. expansion amid franchisee fracas (BNN) When Tim Hortons was acquired by Burger King owner 3G Capital in late 2014, the company’s new owners had big plans to make the coffee chain as ubiquitous south of the border as it is in its home base of Canada. But with crowded competition in the fast-food space and tensions with its franchisees, Tim Hortons is pulling back in some of its biggest U.S. markets, threatening to stall its American expansion efforts, according to documents obtained by BNN Bloomberg.

Overnight markets

Overview: US 10yr note futures are down -0.222% at 119-14, S&P 500 futures are up 0.18% at 2756.5, Crude oil futures are down -0.4% at $65.26, Gold futures are down -0.17% at $1300, DXY is down -0.3% at 93.592, CAD/USD is down -0.63% at 0.776.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.949% 2 Year 2.508%
5 Year 2.158% 5 Year 2.792%
10 Year 2.298% 10 Year 2.95%
30 Year 2.343% 30 Year 3.102%

US Economic Data

7:00 AM MBA Mortgage Applications, June 1st 4.1% (-2.9% prior)
8:30 AM Nonfarm Productivity, 1Q est 0.6% (0.7% prior)
  Unit Labor Costs, 1Q est 2.8% (2.7% prior)
  Trade Balance, Apr est -49.0b (-49.0b prior)

Canadian Economic Data

8:30 AM Int’l Merchandise Trade, Apr est -3.40b (-4.14b)
  Building Permits MoM, Apr est -1.0% (3.1% prior)
  Ivey Purchasing Manager, May (71.5 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