Market Update US tsys higher on heavy volume (over 1mln TY contracts), prices just off the highs after midterm results came in as expected – a split Congress. US 10Y 3.20% (-2.5bps). US tsy curve flatter 2s30s -5bps @46bps. USD index lower, US equity futures higher (S&P +16, Nasdaq+60), VIX -2.36 to 17.55 a three-week low as event risk subsides, Fed not expected to raise rates tomm & no press conf. In Canada, GOCs basically unch, 10Y 2.53%, yields grinding higher over the last two weeks. Two year auction at noon – $3.0bln new Feb 21s with the WI/2Y roll 1.9/1.8. All in 2Y yields are little changed from last auction Oct 10th ~2.35%. At ~1.9bps the WI/2Y roll looks attractive based on straight interpolation – the Sep21/2Y roll is ~3.2bps so a Feb 21 should be closer to 1 bp over 2s. Keep in mind Nov 20 issue has $12bln outstanding so the Feb 21s are likley to be reopened an additional 3 times in an environment of rising rates.

News headlines

Trump Constrained as Democrats Take Back Control of U.S. House (Bloomberg) Donald Trump, who spent the past two years wielding the powers of the presidency unbound by party or political convention, is now constrained. The Democratic takeover of the House of Representatives cripples his conservative agenda and opens the way for unfettered investigations into his scandal-plagued administration, his presidential campaign and his family’s business empire.

Democrats’ Biggest Gain Is Subpoena Power to Question Trump Aides (Bloomberg) President Donald Trump will soon be on the receiving end of something he didn’t see much from a Republican-led Congress: orders, backed up by subpoenas, for officials to answer questions on controversial policies like the dispatch of thousands of troops to the U.S.-Mexico border. Now that Democrats have won control of the U.S. House of Representatives, they will be able to force administration officials to testify and provide documents. That will subject Trump’s decision-making — as well as his personal finances and potential conflicts of interest — to deeper public and private examination by key committees, as the national focus shifts to the 2020 presidential election.

Iran Sanctions May Not Cause Oil Shortage, Nigeria Minister Says (Bloomberg) U.S. sanctions on Iran won’t necessarily translate into a global shortage of oil, according to Nigerian Petroleum Minister Emmanuel Ibe Kachikwu. “Everybody assumes that once they put the sanctions on Iran, you’re going to lose that production,” Kachikwu said in Cape Town, appealing for patience until there’s more clarity on the impact of the penalties. Iran, OPEC’s third-largest producer, has seen exports slide almost 40 percent since April — the month before Washington announced the curbs.

Stocks Climb as Investors Cheer On U.S. Gridlock: Markets Wrap (Bloomberg) U.S. equity futures jumped, the dollar dropped and Treasuries climbed as investors seemed to cheer on an outlook for political gridlock in the wake of the American midterm elections. Risky assets were in favor after results showed Democrats winning control of the House of Representatives and Republicans holding on to the Senate. The outcome dims chances for any more tax cuts or other major fiscal initiatives from the administration that might have pushed yields higher. Overall, investors are betting that the election results won’t do much to disrupt an economy growing at a healthy 3 percent clip.

Kraft to sell Canada natural cheese business to Parmalat (Reuters) Kraft Heinz Co (KHC.O) has agreed to sell its Canadian natural cheese business to Parmalat SpA (PLT.MI) in a C$1.62 billion ($1.23 billion) deal that will help Kraft trim its debt and extend the North American footprint of Parmalat owner Lactalis. The deal comes a month after the new United States-Mexico-Canada Agreement (USMCA) was signed, under which Canada partially opened its protected domestic market to the United States. The cheese business being sold by Kraft, which includes brands like Cracker Barrel, P’tit Quebec and aMOOza, generated about C$560 million in net sales in 2017, Kraft and Parmalat said in statements on Tuesday.

Cohn sees no ‘instant cure’ on U.S.-China trade after midterms (BNN) Ex-White House economic adviser Gary Cohn said he didn’t expect Democratic election gains to speed the end of President Donald Trump’s China trade war, even as some in Beijing held out hope he might warm to talks. “I don’t think there’s an instant cure for the trade issue,” Cohn told Bloomberg’s New Economy Forum in Singapore as assembled business and political leaders digested the results Wednesday. “I wish that I could sit here and say, after the midterm elections, the White House and the administration understand they’ve gotta solve trade issues.” While the Democrats’ success in gaining control of the U.S. House of Representatives might frustrate Trump with investigations and make it harder for him to push through legislation, it might mean little for his trade policy. Trump can wield many of his preferred weapons, from tariffs to criminal probes, without congressional approval, and the opposition party has traditionally been more protectionist on trade.

Imperial Oil approves $2.6-billion oil sands project (BNN) Imperial Oil Ltd has approved a final investment decision to proceed with its $2.6-billion Aspen oil sands project in Alberta. Construction will begin in the fourth quarter of this year; Imperial says Aspen will eventually produce 75,000 barrels of bitumen per day, with first output anticipated in 2022. Imperial touted technology that will be used at the project, saying in a release an « advanced solvent-assisted, steam-assisted gravity drainage » system will slash emissions intensity and Aspen’s water usage by as much as 25 per cent. 

Overnight markets

Overview: US 10yr note futures are up 0.093% at 118-04, S&P 500 futures are up 0.59% at 2775.25, Crude oil futures are up 0.87% at $62.75, Gold futures are up 0.54% at $1232.9, DXY is down -0.56% at 95.779, CAD/USD is down -0.35% at 0.7647.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 2.354% 2 Year 2.936%
5 Year 2.447% 5 Year 3.045%
10 Year 2.529% 10 Year 3.195%
30 Year 2.55% 30 Year 3.399%

US Economic Data

7:00 AM MBA Mortgage Applications, Nov 2nd -4.0% (-2.5% prior)
15:00 PM Consumer Credit, Sep est 15.000b (20.078b prior)

Canadian Economic Data

10:00 AM Ivey Purchasing Managers Index SA, Oct (50.4 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