Market Update

Tsys sharply lower after huge Feb ADp (298k vs 187k), yields 3-4 bps higher, 10Y at 2.56% above 2.55 resis. from Jan 26th,volume in TY futures heavy TYM7 taking out the lows for the year at 123-00.  Tsys weaker thru Asia session, selling picking up in Europe with bunds offered on better Jan. Ind Prod data & supply (uncovered bund auction). The bund curve ~3 bps steeper with the short end pinned by ECB buying, the 2Y -0.88%, 10s @0.352%. Gilts softer on UK spring budget statement as borrowing set to decline on stronger growth (2017 – 2.0% vs 1.4% in Nov). GOCs lower in line with tsys, 10Y 1.778% close to 1.80% high from Feb 15th.  Housing Starts rose for a third month in Feb by 0.6% to 210.2k vs 207.4k exp. Busy day for primary issuance in Cda yest – $2.75 bln /3 deals including $1.5bln RY 5Y dep note @ 81. Husky issued $750mln 10s @ 180 (188 vs 10Y) – the tighter end of guidance yet bonds broke 5-7 tighter. Nissan Cda issued $500mln 2Y FRN & 3Y fixed @ 80.6. The mkt had problem digesting supply – theres been a lack of bank issuance and CIBC & RY have $4.55bln in dep notes rolling out of the index this week and next.

News headlines 

Gundlach Predicts `Old School’ Fed Will Do Sequential Hikes (Bloomberg) The Federal Reserve is likely to begin raising rates sequentially as inflation and growth speed up, according to Jeffrey Gundlach, manager of the DoubleLine Total Return Bond Fund. “There’s starting to become a sequential type of Fed pattern,” Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital, said during a webcast Tuesday. “It’s almost old school.”

Hammond Presents Upbeat Picture as Britain Braces for Brexit (Bloomberg) Chancellor of the Exchequer Philip Hammond will say Britain is well placed to weather the challenges of Brexit as he pledges to take the decisions needed to prosper outside the European Union. In his Spring Budget on Wednesday, Hammond will deliver an upbeat assessment of the future as Prime Minister Theresa May prepares to trigger formal talks with the EU this month. While the need to continue reducing the deficit means difficult decisions on tax and spending, investment remains a priority and the government will help ordinary working families still suffering from the effects of the 2008 financial crisis, the Treasury said in a briefing note.

Hammond Seen Cutting Gilt Sales to Decade-Low in First Budget (Bloomberg) U.K. Chancellor of the Exchequer Philip Hammond may deliver a boost for bondholders in his first budget, with analysts forecasting gilt issuance in the next fiscal year at its lowest since the financial crisis a decade ago. The Debt Management Office will sell 109.7 billion pounds ($134 billion) of gilts in the year starting April, compared to 146.5 billion pounds in the current fiscal year, according to the median prediction of 14 primary dealers surveyed by Bloomberg. With Britain’s economic data beating expectations since the decision to leave the European Union, analysts see improved growth projections, reducing the need to borrow in Wednesday’s budget.

China posts first monthly trade deficit in three years as imports soar (Reuters) China unexpectedly posted its first trade gap in three years in February as a construction boom pushed imports much higher than expected and as increasing U.S. protectionist rhetoric casts a spotlight on the export giant’s trade position. The upbeat import reading reinforced the growing view that economic activity in China picked up in the first two months of the year, adding to a global manufacturing revival. That could give China’s policymakers more confidence to press ahead this year with oft-delayed and painful structural reforms such as tackling a rapid build-up in debt.

Japan Is Poised for Its Longest Run of GDP Growth in a Decade (Bloomberg) Global tailwinds look set to sustain Japan’s modest recovery in 2017, as exports prop up an economy that’s still struggling to stoke domestic demand. Wednesday’s upward revision of gross domestic product in the final three months of last year sets the scene for a fifth-straight period of growth — the longest streak since the six quarters of gains to mid-2006.

Mnuchin’s Treasury Staff Picks Stall as White House Scrutinizes Tweets (Bloomberg) Steven Mnuchin’s picks for the top ranks of the U.S. Treasury are stalled due to resistance from White House aides, including one recruit whose Twitter account was scrutinized for potential criticism of Donald Trump, according to people familiar with the matter.

OPEC Said to Break Bread With Shale in Rare Show of Détente (Bloomberg) For the last two years, they’ve been locked in a battle for supremacy of the oil market. But for a couple of hours in Houston over dinner on Sunday, the head of OPEC and leaders of some of America’s top shale producers shared a table for a rare off-the-record chat about the future of oil.

Ivey purchasing index slows in February as material prices cool (TheGlobeandMail) The pace of purchasing activity in Canada slowed in February, driven by a decline in prices paid by companies for materials, according to Ivey Purchasing Managers Index data released on Tuesday. The seasonally adjusted index fell to 55.0 from 57.2 in January, though the unadjusted index rose to 55.1 from 52.3. A reading above 50 indicates an increase in the pace of activity.

Overnight markets 

Overview: US 10yr note futures are down -0.38% at 122-32, S&P 500 futures are up 0.08% at 2368.5, Crude oil futures are down -1.22% at $52.49, Gold futures are down -0.48% at $1210.3, DXY is up 0.21% at 102.02, CAD/USD is up 0.34% at 0.7431.

US Economic Data 

7:00 AM MBA Mortgage Applications, Mar 3rd, 3.3% (prior 5.8%)
8:15 AM ADP Employment Change, Feb, 298k, est. 187k, (prior 246k, revised 261k)
8:30 AM Nonfarm Productivity, 4Q F, 1.3%, est. 1.5% (prior 3.1%)
Unit Labor Cost, 4Q F, 1.7%, est. 1.6% (prior 1.7%)
10:00 AM Wholesale Trade Sales, m/m, Jan F, (prior -0.1%)
  Wholesale Inventories, m/m, Jan, est. 0.5% (prior 2.6%)

Canadian Economic Data

8:15 AM Housing Starts, Feb, 210.2k, est. 200k (prior 207.4k, revised 208.9k)
8:30 AM Labor Productivity, q/q, 4Q, 0.4%, est. 0.4% (prior 1.2%)
Building Permits, m/m, Jan, 5.4%, est. 3.0% (prior -6.6%, revised -4.4%)


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, David Leclair-Legault

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

Tel : (514)-861-0240
Fax: (514)-861-3230