Market Update

Tsys unch, 10Y 2.167%, low volume in TY futures o/n (~230k), with core European bonds underperforming slightly on supply, 10Y bund 0.403 (+0.5bps).  Germany sold ~E2.5bln 10Y bunds at 0.39% with a b/c 1.6x vs 1.3x August 23rd. Bund futures lower with a big spike in volume ~7:45am as the contract fell below 161.80. UK gilts lower, paring earlier gains after hourly earnings rose less than exp in July 2.1% vs 2.3% thou the unemployment rate fell to 4.3% the lowest since 1975. The Bank of England meet tomorrow and is not expected to hike rates as wage growth has fallen further behind inflation in recent months. GOCs lower, underperforming tsys for the first day in three, 1-2bps across the curve, 10Y 2.054% edging closer to 2.06% July 31st intraday. Provinicials well bid yest , most of the action after Ontario reopened their 2048s @ 83.5 with a carve out, ended 82/. The City of Montreal issued  $250mln in 27s @ QCs + 25

News headlines 

Unemployment rate falls to 4.3% as wages stagnate (BBC) UK unemployment fell by 75,000 in the three months to July, bringing the jobless rate down to 4.3% from 4.4% in the previous quarter. The rate remains at its lowest since 1975, but a squeeze on real incomes continues, according to the Office for National Statistics figures. Wages in the period were 2.1% up on a year earlier, little changed from the previous months’ growth rates. With inflation hitting 2.9% in August, wages are failing to keep up. In real terms, wages have fallen by 0.4% over the last year.

Goldman Sachs lowers U.S. third-quarter GDP forecast after Harvey, Irma (Reuters) Goldman Sachs economists lowered their forecast for U.S. economic growth in the third quarter by 0.8 percentage point to 2.0 percent, based on an expected slowdown in business activity due to damage from Hurricanes Harvey and Irma. “If damages are significantly higher — or if Florida flooding continues to weigh on consumer spending and housing/investment activity into late September and October — we would expect additional downside to near-term growth,” they wrote in a research note released late on Monday.

Global oil demand to exceed expectations in 2017, says IEA; OPEC cuts supply (CNBC) Global oil demand is set to accelerate faster than anticipated this year, according to the International Energy Agency (IEA), which has revised up its 2017 growth estimates. Strong second-quarter demand has buoyed oil markets, which have been struggling to rebalance as a supply glut has weighed heavily on prices, the IEA said in its September report released Wednesday.

Will Trump Target Muni-Bond Tax Break? Market Sees Little Chance (Bloomberg) Donald Trump and Treasury Secretary Steven Mnuchin have expressed support for maintaining the tax break on municipal bonds. The market takes them at their word. As the Republican president embarks on a push for tax cuts, top-rated state and local government bonds due in five years are yielding just 65 percent of comparable Treasuries, holding near a more than seven-year low, according to data compiled by Bloomberg. That shows that investors are still placing a high value on the tax exemption. If they expected the tax break to be eliminated — or chipped away at — municipal yields would rise closer Treasuries to compensate for that risk.

Gundlach: Equity investors to see change in dynamic with QE reversal (Reuters) Investors in equities and risk assets should brace themselves for the end of quantitative easing, given the high correlation it has to high stock and junk bond prices, Jeffrey Gundlach, chief executive at DoubleLine Capital, warned Tuesday. Equity and risk-asset investors are “unfortunately about to see the first change in dynamic in years” with the end of QE, Gundlach said on a webcast. Jeffrey Gundlach sees ‘short term’ bottom in the US dollar (CNBC) DoubleLine’s Gundlach calls German bond yields ‘crazily low’ (FT)

EU’s Juncker: seize Brexit chance to forge tighter union (Reuters) European Commission chief Jean-Claude Juncker called on EU governments on Wednesday to seize a window of opportunity from Brexit and economic growth to forge a tighter union built around the euro currency and a pivotal role in global trade. In his annual State of the European Union speech, Juncker sketched out a vision of a post-2019 EU where some 30 countries would form a euro zone, with an EU finance minister running key budgets to help states in trouble.

Robots are an ETF’s new best friend, but some need convincing (Globe and Mail) It’s time for exchange-traded funds to start wooing the robots. But the asset management industry isn’t quite so sure. Automated advice platforms — known as robo advisers — are poised to expand their investments in ETFs over the next five years, boosting their assets to more than $800-billion, according to a report by PricewaterhouseCoopers. Overall, digital advice is likely to grow to $1-trillion by 2020, a separate study by Aite Group showed.

Cities Swimming in Raw Sewage as Hurricanes Overwhelm Systems (Bloomberg) Hurricane Harvey took aim at one of the nation’s most industrial regions, releasing a stream of toxic pollutants from chemical plants, refineries and Superfund sites in Texas. But when its bigger sister Irma slammed into Florida, environmental alarms rang over a different kind of discharge: raw sewage. Millions of gallons of poorly treated wastewater and raw sewage flowed into the bays, canals and city streets of Florida from facilities serving some of the nation’s fastest-growing counties. More than 9 million gallons of releases tied to Irma have been reported as of late Tuesday as inundated plants were submerged, forced to bypass treatment or lost power.

Overnight markets 

Overview: US 10yr note futures are up 0.037% at 126-22, S&P 500 futures are down -0.13% at 2491, Crude oil futures are up 0.97% at $48.7, Gold futures are up 0.35% at $1337.4, DXY is down -0.09% at 91.799, CAD/USD is down -0.36% at 0.8236.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.547% 2 Year 1.335%
5 Year 1.772% 5 Year 1.744%
10 Year 2.057% 10 Year 2.162%
30 Year 2.416% 30 Year 2.765%

US Economic Data 

8:30 AM PPI Final Demand MoM, Aug, 0.2% est. 0.3% (prior -0.1%)
PPI Ex Food and Energy Mom, Aug, 0.1% est. 0.2% (prior -0.1%)
PPI Ex Food, Energy, Trade , Aug, 0.2% est. 0.1% (prior 0.0%)
PPI Final Demand YoY, Aug, 2.4% est. 2.5% (prior 1.9%)
PPI Ex Food and Energy YoY, Aug, 2.0% est. 2.1% (prior 1.8%)
PPI Ex Food, Energy, Trade , Aug 1.9% (prior 1.9%)
14:00:00 PM Monthly Budget Statement

Canadian Economic Data 

8:30 AM Teranet / National Bank HPI, Aug 0.6% (prior 2%)
Teranet / National Bank HPI, Aug 13.1% (prior 14.2%)
Teranet / National Bank HPI, Aug 222.03k (prior 220.75K)


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

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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