Market Update
US tsys higher, 10Y 2.105% (-3bps), tsy curve 2bps flatter. The ECB left rates unch at 0.25%, saying it expects to leave rates unchanged through 2020 in order to deal with low inflation, German bunds lower and flatter on the news with the 2Y -0.67% (+3bps) and the EUR spiking higher 1.1267 (+0.40%) – somewhat hawkish as more easing had been priced in. GOCs higher , in line with tsys, 10Y 1.42%. May Ivey PMI scheduled for 10:00am. Marked divergence in Can/US over the past week – underperformance at the short end , while at the long end Can/US is ~4bps tighter – buying in the 10Y yesterday post weak ADP seemed to drag longs higher as well. The bid in 2s seems to have stalled here, as evidenced by price action following yesterday’s strong 2Y auction.
News headlines
Trump threatens China with tariffs on further $300 billion of goods (Reuters) U.S. President Donald Trump threatened to hit China with tariffs on “at least” another $300 billion worth of Chinese goods but said he thought both China and Mexico wanted to make deals in their trade disputes with the United States.
Debt blamed in credit crisis could help Canada with housing risk (BNN) The type of securities blamed for triggering a credit crisis in the U.S. a decade ago could now be part of the solution in Canada, where a cooling housing market is a key risk to its US$1.7 trillion economy. The Bank of Canada is discussing ways to encourage a more robust market for residential mortgage-backed securities with potential investors. Only about $1.5 billion of Canadian uninsured mortgages have been pooled in RMBS deals, or about 0.1 per cent of the country’s mortgage debt, according to rating company DBRS Ltd. No lender has widely marketed such a deal since September, when private lender MCAP sold $254 million of the notes.
Ontario government moves to cap wage increases at 1 per cent for public-sector employees (TheGlobeandMail) The Ontario government is moving to cap wage hikes for more than a million public-sector workers to no more than 1 per cent a year as the province enters negotiations with several teachers’ unions. Treasury Board President Peter Bethlenfalvy introduced legislation on Wednesday to cap wage increases for the broader public sector on new contracts negotiated for a three-year period. The bill came with no notice to unions and the province’s public-service union decried the legislation as unconstitutional.
Loonie will surge if Poloz doesn’t follow Fed on cuts: Rosenberg (BNN) If the U.S. Federal Reserve cuts interest rates, the Bank of Canada will follow suit, says David Rosenberg, who also warns that the loonie will surge if it doesn’t. “My sense is that Poloz seems to be very confident and wants to keep interest rates stable here,” the chief economist and strategist at Gluskin Sheff + Associates told BNN Bloomberg in an interview Wednesday. “But think about what the risks are if the Fed eases, and the Bank of Canada operates policy here in a vacuum and doesn’t follow suit. What ends up happening is the Canadian dollar is going to ratchet higher.” Rosenberg warned that a higher loonie is “the last thing” Canada’s manufacturers and resource producers need right now, and that the fundamentals don’t support the Canadian dollar heading toward 80 cents US.
U.S. trade deficit narrows; gap with China widens (Reuters) The U.S. trade deficit unexpectedly narrowed in April as imports of goods dropped to a 15-month low, offsetting an aircraft-led decline in exports. The Commerce Department said on Thursday the trade deficit fell 2.1% to $50.8 billion. Data for March was revised up to show the trade gap increasing to $51.9 billion instead of the previously reported $50.0 billion. The government revised trade data from 2014. Economists polled by Reuters had forecast the trade gap widening to $50.7 billion in April.
Markets Overview: US 10yr note futures are up 0.123% at 127-05, S&P 500 futures are up 0.28% at 2835.75, Crude oil futures are up 0.79% at $52.09, Gold futures are up 0.56% at $1341.1, DXY is down -0.29% at 97.035, CAD/USD is down -0.08% at 0.746.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.323% | 2 Year | 1.837% |
| 5 Year | 1.286% | 5 Year | 1.848% |
| 10 Year | 1.422% | 10 Year | 2.1% |
| 30 Year | 1.725% | 30 Year | 2.597% |
US Economic Data
| 07:30 AM | Challenger Job Cuts YoY, May — 10.90% |
| 08:30 AM | Revisions: Trade Balance, 0.00% 0.00% |
| Trade Balance, Apr -$50.7b -$50.0b | |
| Nonfarm Productivity, 1Q F 3.50% 3.60% | |
| Unit Labor Costs, 1Q F -0.90% -0.90% | |
| Initial Jobless Claims, 37043 215k 215k | |
| Continuing Claims, 45778 1660k 1657k | |
| 09:45 AM | Bloomberg Consumer Comfort, 37408 — 6080.00% |
| 12:00 PM | Household Change in Net Worth, 1Q — -$3730b |
Canadian Economic Data
| 08:30 AM | Int’l Merchandise Trade, Apr -2.80b -3.21b |
| 10:00 AM | Ivey Purchasing Managers Index SA, May — 5590.00% |
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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