Market Update Tsys trading higher before CPI & 30Y auction, 10Y 2.98 (-1bp). S&P futures slightly higher (+4), crude higher extending gains above $71 on Middle East tensions, BOE left rates steady as exp in 7-2 vote, Carney leaving in doubt the pace of future hikes after recent slowing in inflation & growth, year end hike odds fell to 85%. US CPI expected to have risen 0.3% last month after falling 0.1% in March, the spike in energy expected to contribute to the rebound, thou yesterday’s tame PPI reading adds to some downside risk. In Canada, GOCs underperforming, slightly weaker with the 10Y approaching 2.40% resist. Provis continuing to tighten as GOC yields rise, the Ontario 48/27 credit curve narrowing 0.5bps yest to 14.3. Ontario & Sask rumoured for today.
News headlines
BOE Keeps Interest Rate on Hold as Inflation Seen Cooling Faster (Bloomberg) The Bank of England kept interest rates on hold after a first-quarter economic slump and said inflation will slow faster than previously anticipated. The Monetary Policy Committee voted 7-2 to hold at 0.5 percent, as predicted by all but three of 54 economists in a Bloomberg survey. While Ian McCafferty and Michael Saunders reiterated their support for an immediate increase, investors pared their bets on a rate hike this year. The pound fell.
Iran’s Door to the West Is Slamming Shut, and That Leaves China (Bloomberg) Tehran traffic is gridlocked half the time, and the city spends most of the year engulfed in smog, so it’s not surprising that locals travel underground when they can — on a metro system that sometimes carries 2 million people a day. During the sanctions decade, when Iran was largely frozen out of global commerce, the capital’s authorities managed to steadily expand the network — roughly doubling its size. It wasn’t easy. Often, “the parts we needed, we had to build ourselves,’’ said Ali Abdollahpour, deputy managing director of Tehran Urban and Suburban Railway Operating Company.
China Tariff Retaliation Threatens Key States in Trump Country (Bloomberg) Retaliatory tariffs China is threatening against U.S. exports would hit hardest in states that helped propel Donald Trump to the presidency, bringing home the risks of a trade war ahead of midterm elections. Of the 10 states that face potential Chinese tariffs on more than $1 billion of their exports, seven backed Trump in 2016, according to a report by the American Action Forum, a Washington-based group that opposes protectionist trade policies.
Dollar Drops as Treasuries Rise; Pound Hit by BOE: Markets Wrap (Bloomberg) The dollar gave up some of its recent gains on Thursday, declining before inflation data as traders confronted a range of catalysts from political risks to missiles in the Middle East. European stocks slipped, U.S. equity futures rose, and the pound reversed an advance after the Bank of England held interest rates. Ten-year Treasury yields, which have been driving up the greenback and exacting pain on emerging markets, dipped back below 3 percent to push the dollar toward its first drop in five days. The pound weakened as policymakers at the central bank voted 7-2 to keep rates unchanged in what was interpreted as a dovish hold. It then pared the decline as Governor Mark Carney struck a more hawkish tone in a press conference after the decision.
TSX futures dip on political uncertainty (Reuters) Stock futures pointed to a lower opening for Canada’s main stock index on Thursday amid political uncertainty after Israel said it attacked nearly all of Iran’s military infrastructure in Syria after Iranian forces fired rockets at Israeli-held territory for the first time. It was the heaviest Israeli barrage in Syria since the start in 2011 of its civil war, in which Iranians, allied Shi’ite militias and Russian soldiers have deployed in support of President Bashar al-Assad.
Canadian Tire to buy sportswear brand Helly Hansen in C$985 mln deal (Reuters) Retailer Canadian Tire Corp (CTCa.TO) said on Thursday it would buy Norway-based sportswear and work-wear brand Helly Hansen for C$985 million, including debt. Canadian Tire said the deal, which will close in the third quarter, will add to earnings immediately. Oslo-based Helly Hansen sells apparel used in outdoor activities such as sailing, skiing, mountaineering and hiking.
Bank of Canada raises conventional 5-year mortgage rate (BNN)The bar is now higher for homebuyers to qualify for mortgages in Canada after the central bank raised a key metric used in stress tests that determine borrowers’ eligibility. The Bank of Canada raised the conventional five-year mortgage rate from 5.14 per cent to 5.34 per cent after all Big Six banks raised their posted five-year fixed mortgage rates in recent weeks.
Canada worried auto production could get tied up in NAFTA’s red tape (BNN) Canada is voicing concerns heard from car companies that some of the rules being considered during the NAFTA negotiations could prove damaging to one of this continent’s biggest industries. Foreign Affairs Minister Chrystia Freeland says she raised some of those worries Wednesday during a meeting with her U.S. counterpart, as countries make what could be a last stab at a deal in 2018.
Overnight markets
Overview: US 10yr note futures are up 0.066% at 119-11, S&P 500 futures are up 0.13% at 2699.5, Crude oil futures are up 0.56% at $71.54, Gold futures are up 0.42% at $1318.5, DXY is down -0.15% at 92.905, CAD/USD is down -0.54% at 0.7822.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.958% | 2 Year | 2.522% |
| 5 Year | 2.205% | 5 Year | 2.828% |
| 10 Year | 2.389% | 10 Year | 2.979% |
| 30 Year | 2.444% | 30 Year | 3.148% |
US Economic Data
| 8:30 AM | Initial Jobless Claims, May 5th 211k est 219k (211k prior) |
| Continuing Claims, Apr 28th 1790k est 1800k (1756k prior) | |
| CPI MoM, Apr 0.2% est 0.3% (-0.1% prior) | |
| CPI Ex Food and Energy MoM, Apr 0.1% est 0.2% (0.2% prior) | |
| CPI YoY, Apr 2.5% est 2.5% (2.4% prior) | |
| CPI Ex Food and Energy YoY, Apr 2.1% est 2.2% (2.1% prior) | |
| CPI Index NSA, Apr 250 546 est 250.700 (249.554 prior) | |
| CPI Core Index SA, Apr 256 450 (256.200 prior) | |
| Real Avg Weekly Earnings YoY, Apr 0.4% (0.9% prior) | |
| Real Avg Hourly Earning YoY, Apr 0.2% (0.4% prior) | |
| 9:45 AM | Bloomberg Consumer Comfort, May 6th (56.5 prior) |
| 14:00 PM | Monthly Budget Statement, Apr est 212.0b (-208.7b prior) |
Canadian Economic Data
| 8:30 AM | New Housing Price Index MoM, Mar est 0.0% (-0.2% prior) |
| New Housing Price Index YoY, Mar est 2.4% (2.6% 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