14/09/2018

Market Update US tsys paring losses after weaker Aug Retail Sales (0.1% vs 0.4%), 10Y 2.985 (+1.5bps), highest since Aug 2nd on avg overnight volume in TY futures (330k). USD index bouncing off the lows after falling to a two week low. Core Euro bonds lower, underperforming tsys. 10Y gilts 3.5bps higher after BOE Carney warned rates could rise on a ‘no-deal’ Brexit outcome. GOCs lower, 1bp wider vs tsys, 10Y above 2.35% for the first time since August 9th, 2.35% also 62% retracement of the May-June rally. CMB 5Y to be priced this morning , Dec 15 2023 in the area of 31.5bps – we have sold out of our allocation, and see decent RV based on ONT/CMB 23 ~12.5bps closer to the low end of the six month range (11-18bps).

News headlines

Talking Won’t End Trump’s Growing China Trade War Any Time Soon (Bloomberg) The Trump administration’s trade war with China is following an increasingly predictable pattern and that should cause a rethink for anybody hoping for a rapid resolution. The day after financial markets around the world cheered the apparent good news that Treasury Secretary Steven Mnuchin was inviting his Chinese counterparts to sit down for further high-level negotiations, President Donald Trump undermined that very idea.

Russia Surprises With First Rate Hike Since 2014, Boosting Ruble (Bloomberg) Russia’s central bank unexpectedly raised interest rates for the first time since 2014, following its counterparts across emerging economies as inflation risks mount with a slumping currency and threats of U.S. sanctions. Policy makers signaled more rate hikes are possible after raising their benchmark to 7.5 percent, a level last seen in March, from 7.25 percent, according to a statement on Friday. Only two of 42 economists surveyed by Bloomberg predicted an increase. The ruble flipped to gains after the decision, rallying for the best performance in emerging markets.

Pompeo Hits Iran Leader for Silence on China’s Detained Muslims (Bloomberg) U.S. Secretary of State Michael Pompeo blasted Iran’s top leader for failing to speak out over China’s reported detention of large contingents of its Muslim minority population. Iranian Supreme Leader Ayatollah Ali Khamenei “fancies himself the leader of the Islamic world, but his regime has been totally silent as China — the top buyer of #Iran’s oil — has persecuted and detained hundreds of thousands of its Muslim citizens,” Pompeo wrote on Twitter.

Stocks Rise as Busy Week Ends; Dollar Extends Drop: Markets Wrap (Bloomberg) Stocks in Europe gained along with U.S. equity-index futures as prospects for U.S.-China trade talks and action by Turkey and Russia to support their currencies fostered a positive mood. The dollar deepened its decline. Miners and carmakers led the advance in the Stoxx Europe 600 Index, following a rally in most Asian benchmarks as they extended their rebound from the worst run of losses in 16 years. As appetite for risk returns, the greenback headed for its biggest weekly loss since February, while Treasury yields nudged toward 3 percent. The pound was set for a six-week high and gilts declined after Bank of England Governor Mark Carney was said to have told lawmakers that a no-deal Brexit would see interest rates rise rather than fall. Oil was poised for a weekly gain as traders keep watch on Hurricane Florence.

Canada PM says he wants a good NAFTA deal soon, hazy on deadline (Reuters) Canadian Prime Minister Justin Trudeau said on Thursday he wanted a good NAFTA deal as soon as possible, but did not answer directly when asked if he agreed with Washington that the end of September was the final deadline for talks. Canada and the United States are struggling to settle differences over access to the Canadian dairy market and how to resolve trade disputes. The United States has already struck a side deal with Mexico, the third member of the North American Free Trade Agreement. U.S. President Donald Trump says he will ditch Canada unless it quickly makes concessions.

Tim Hortons says it has reached agreement with franchisee whose restaurants it seized (BNN) The parent company of Tim Hortons says it has reached an agreement with the head of an unsanctioned franchisee group who had his four restaurants seized after he allegedly leaked sensitive corporate news to the media. « Both parties have agreed that Mr. (David) Hughes has left the Tim Hortons business and an agreement was reached that is satisfactory to both parties, » said Restaurant Brands International Inc. spokeswoman Jane Almeida. She declined to provide financial details, citing a confidentiality agreement.

AltaGas plans Canadian IPO in shift to U.S. after WGL deal (BNN) AltaGas Ltd. () is intensifying its shift toward the U.S., following up its US$4.6 billion takeover of Washington utility WGL Holdings Inc. with a plan to spin off its Canadian assets through an initial public offering. The IPO and a debt repayment from the new company would deliver $1 billion in cash proceeds to AltaGas, which plans to use the money to repay a loan it took on to fund the WGL acquisition, according to a statement Thursday. The transaction would leave AltaGas focused on natural gas and U.S. utilities, while AltaGas Canada Inc. would own Canadian gas distribution and wind power assets. 

Overnight markets

Overview: US 10yr note futures are down -0.144% at 119-08, S&P 500 futures are up 0.16% at 2915, Crude oil futures are up 0.32% at $68.81, Gold futures are up 0.14% at $1209.9, DXY is up 0.04% at 94.557, CAD/USD is up 0.08% at 0.7687.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.15%	2 Year	2.769%
5 Year	2.269%	5 Year	2.888%
10 Year	2.345%	10 Year	2.985%
30 Year	2.36%	30 Year	3.119%

US Economic Data

8:30 AM	Retail Sales Advance MoM, Aug 0.1% est 0.4% (0.5% prior)
	Retail Sales Ex Auto MoM, Aug 0.3% est 0.5% (0.6% prior)
	Retail Sales Ex Auto and Gas, Aug 0.2% est 0.5% (0.6% prior)
	Import Price Index MoM, Aug -0.6% est -0.2% (0.0% prior)
	Import Price Index ex Petroleum MoM, Aug -0.2%   est -0.2% (-0.1% prior)
	Import Price Index YoY, Aug 3.7% est 4.1% (4.8% prior)
	Export Price Index MoM, Aug -0.1% est 0.0% (-0.5% prior)
	Export Price Index YoY, Aug 3.6% (4.3% prior)
9:15 AM	Industrial Production MoM, Aug est 0.3% (0.1% prior)
	Capacity Utilization, Aug est 78.2% (78.1% prior)
	Manufacturing (SIC) Production, Aug est 0.3% (0.3% prior)
10:00 AM	Business Inventories, Jul est 0.6% (0.1% prior)
	U. of Mich. Sentiment, Sep est 96.6 (96.2 prior)
	U. of Mich. Current Conditions, Sep (110.3 prior)
	U. of Mich. Expectations, Sep (87.1 prior)
	U. of Mich. 1 Yr Inflation, Sep (3.0% prior)
	U. of Mich. 5-10 Yr Inflations, Sep (2.6% prior)

Canadian Economic Data

There is no Canadian economic data for today.