11/09/2018

Market Update US tsys trading weaker, yields 1-1.5bps higher across the curve with the 10Y 2.945% (+1.5bps). Volatile session for USD, DXY well off the lows now higher 95.29, after falling to 1 week low 94.90 earlier.  Tsys weaker in Europe along with bunds/gilts on solid European eco data (UK wages, German ZEW) and continued rally in EU peripheral spds. US supply today – $35bln 3Y auction. GOCs weaker in line with tsys, 10Y 2.30%. Provis opening unch, Quebec 2028 reopening @ 63.5 yest, now 63.5/63. 

News headlines

Canadian Crude Prices Collapse as Alberta Glut Grows Again (Bloomberg) Canadian crude prices are plunging once again as repairs were completed on Alberta’s second-biggest oil sands upgrader and production surged from a new mine. Synthetic crude, a light grade produced in upgraders, fell Thursday to the biggest discount to West Texas Intermediate futures since December 2013, data compiled by Bloomberg show. 

Harry Potter and the Bank of England’s Productivity Policy Maker (Bloomberg) Britain’s famous boy wizard may have the magic to revive the U.K. economy, according to the Bank of England’s newest policy maker Jonathan Haskel. The problem is weak productivity, and he says part of the solution might just be found in intangible things like Harry Potter’s spells. As the Monetary Policy Committee gathers in London this week ahead of their announcement Thursday, McKinsey & Co. warns that 90 percent of future U.K. growth will need to come from improvements in that area if the economy is to keep pace with historical rates.

Kremlin Takes After Trump With Swipe at ‘Undesirable’ Rate Hike (Bloomberg) Russian President Vladimir Putin’s government is wading back into central banking for a second week as the prospect of higher interest rates tests its patience. The drumbeat started soon after Governor Elvira Nabiullina said a week ago that the first rate hike since 2014 will be on the agenda when the central bank meets Sept. 14. The prime minister first urged policy makers to take a more “active position” in addressing borrowing costs that are still high relative to inflation. The Kremlin’s top economic aide, Andrey Belousov, then said that while he saw grounds for tightening, such a step would be “highly undesirable.”

Stocks Slip as Trade Mood Sours; Dollar Stronger: Markets Wrap (Bloomberg) U.S. equity futures fell with European shares after a mixed session in Asia, as fears returned over trade relations among the world’s two biggest economies. The dollar advanced, with the pound and euro barely holding Monday’s gains. Miners and carmakers dropped in the Stoxx Europe 600 Index and contracts on the Dow and S&P 500 erased earlier advances. China will ask the World Trade Organization for permission to retaliate against the U.S. due to its failure to modify anti-dumping methodologies, the WTO said. The pound lost some of the ground made after European Union chief Brexit negotiator Michel Barnier talked up a deal with the U.K.

Canada’s Freeland to hold NAFTA talks on Tuesday as time runs short (Reuters) Canadian Foreign Minister Chrystia Freeland will meet U.S. Trade Representative Robert Lighthizer in Washington on Tuesday for another round of talks to renew the NAFTA trade pact, an official said on Monday, as time runs short to seal a deal. Freeland spokesman Adam Austen did not give details. After more than a year of negotiations, Canada and the United States are still trying to resolve differences over the North American Free Trade Agreement, which also includes Mexico.

China seeks WTO backing for sanctions on U.S. over dumping duties (Reuters) China will ask the World Trade Organization (WTO) next week for permission to impose sanctions on the United States, for Washington’s non-compliance with a ruling in a dispute over U.S. dumping duties, a meeting agenda showed on Tuesday. The request is likely to lead to years of legal wrangling over the case for sanctions and the amount. China initiated the dispute in 2013, complaining about U.S. dumping duties on several industries including machinery and electronics, light industry, metals and minerals, with an annual export value of up to $8.4 billion.

HBC, Austria-based Signa form joint venture in European retail (BNN) Hudson’s Bay Co. has completed a deal with an Austrian retail heavyweight that will see the two firms create a joint venture to operate existing businesses in Germany, Belgium and elsewhere in Europe. The Canadian retailer announced the agreement in a statement early Tuesday, saying it’s formed a “strategic partnership for its European retail and real estate assets” with Austria-based Signa Retail Holdings.

The trade war will likely cost China 700,000 jobs, JPMorgan says (BNN) The tariff battle with the U.S. will probably cost China 700,000 jobs, or more in the event of further escalation. The job losses would come if the U.S. imposes 25 per cent tariffs on US$200 billion in Chinese exports and China retaliates by devaluing its currency by 5 per cent and adding to levies on U.S. goods, according to economists led by Haibin Zhu at JPMorgan Chase & Co. If China doesn’t retaliate at all, 3 million people could lose their jobs, they wrote in a research note Tuesday. The study highlights the more profound impacts of the tariff battle on the world’s second largest economy, which is grappling with a slowing pace of growth and a massive debt pile. Things may get even worse: if the U.S. imposes 25 per cent tariffs on all Chinese imports and China retaliates with the levies already announced, the measures will mean 5.5 million lost jobs and 1.3 percentage points cut off gross domestic product growth.

Overnight markets

Overview: US 10yr note futures are down -0.118% at 119-17, S&P 500 futures are down -0.3% at 2871.5, Crude oil futures are up 0.24% at $67.7, Gold futures are down -0.15% at $1198, DXY is up 0.05% at 95.201, CAD/USD is down -0.01% at 0.7598.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.118%	2 Year	2.727%
5 Year	2.226%	5 Year	2.843%
10 Year	2.304%	10 Year	2.95%
30 Year	2.315%	30 Year	3.094%

US Economic Data

6:00 AM	NFIB Small Business Optimism, Aug 108.9 est 108.0 (107.9 prior)
10:00 AM	JOLTS Job Opening, Jul est 6675 (6662 prior)
	Wholesale Inventories MoM, Jul est 0.7% (0.7% prior)
	Wholesale Trade Sales MoM, Jul est 0.1% (-0.1% prior)

Canadian Economic Data

8:15 AM

Housing Starts, Aug 201.0k est 216.3k (206.3k prior)