Market Update
US tsys lower for a second day, moving lower still after July retail sales rose 0.6%, core 0.5% – both well above expectations, 10Y closing in on 2.30%, now 2.28% (+6bps). Empire Manufacturing 25.2 in August vs 10 exp., prices paid 31 vs 21.3, new orders 20.6 vs 13.3. Overnite tensions defused as NK said to have put off plans to attack Guam, triggering a rally in risk assets with the USD higher, gold down ~1.0% & Euro equities up 0.40%. Long tsys also pressured by Amazon announcing its 7 part bond offering to fund all/most of its $13.7bln purchase of Whole Foods. Moody’s has assigned a Baa1 rating to Amazon saying the deal would be ‘credit positive’ according to an article in MW. GOCs lower in mostly in line with tsys except in 10s which are ~1bp wider, 2s10s 4bps steeper, 10Y 1.94% (+7bps). Little change in any of the long rolls (48/45 -2.6, 45/41 1.6) before tomorrows $1.2bln Dec 2048 auction – at 2.38% thirty year yields are ~25bps higher than at the last long auction on May 17th.
News headlines
Dollar Extends Gain as Havens Slump; Bonds Decline: Markets Wrap (Bloomberg) Traditional haven assets including gold and the yen slumped and bonds across Europe declined with Treasuries as the prospect of war between the U.S. and North Korea receded. The dollar extended its advance, while European stocks struggled for traction following Monday’s strong gains.
North Korea’s Kim holds off on Guam missile plan; Seoul says will prevent war (Reuters) North Korea’s leader has delayed a decision on firing missiles towards Guam while he waits to see what the United States does next, the North’s state media said on Tuesday, as South Korea’s president said Seoul would seek to prevent war by all means.
Oil slips on strong dollar, OPEC and China weigh (Reuters) Oil prices slipped on Tuesday, extending a heavy sell-off after a surge in the dollar and weighed down by signs of weaker demand in China, the world’s second-largest consumer. Benchmark Brent crude LCOc1 was down 30 cents at $50.43 a barrel by 1050 GMT. U.S. light crude CLc1 was 20 cents lower at $47.39.
Solid German growth gives Merkel election tailwind (Reuters) Strong household and state spending consolidated Germany’s role as the euro zone’s growth engine in the second quarter, helping Chancellor Angela Merkel to burnish her economic credentials less than six weeks before an election.
UK inflation holds steady in July as price pressures ease (Reuters) British consumer price inflation unexpectedly held steady last month as fuel prices fell amid other signs that the squeeze on households’ spending power may slowly be starting to level off. Official figures on Tuesday showed the pace at which manufacturers’ raw material costs are rising slowed by the most in over five years as the initial impact of June 2016’s vote to leave the European Union dropped out of annual comparisons.
Three More CEOs Turn Backs on Trump as Merck, Intel Quit Council (Bloomberg) Could America’s first CEO president lose America’s CEOs? It was a question that came to the fore again Monday when first Merck & Co.’s Kenneth Frazier, then Under Armour Inc.’s Kevin Plank and Intel Corp.’s Brian Krzanich stepped down from a White House business group set up to advise Donald Trump.
What to Expect From Nafta 2.0 Negotiations: QuickTake Scorecard (Bloomberg) Sparks could fly when trade negotiators for U.S. President Donald Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto meet Aug. 16-20 in Washington. Their task: Begin renegotiating the North American Free Trade Agreement.
Overnight markets
Overview: US 10yr note futures are down -0.395% at 126-02, S&P 500 futures are up 0.23% at 2469.25, Crude oil futures are down -0.9% at $47.16, Gold futures are down -1.29% at $1273.8, DXY is up 0.66% at 94.028, CAD/USD is up 0.33% at 0.7834.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.252% | 2 Year | 1.351% |
| 5 Year | 1.536% | 5 Year | 1.825% |
| 10 Year | 1.943% | 10 Year | 2.278% |
| 30 Year | 2.376% | 30 Year | 2.866% |
US Economic Data
| 8:30 AM | Import Price Index, m/m, Jul, 0.1%, est. 0.1% (prior -0.2%) |
| Import Price Index, y/y, Jul, 1.5%, est. 1.5% (prior 1.5%) | |
| Empire Manufacturing, Aug, 25.2, est. 10.0 (prior 9.8) | |
| Retail Sales Advance, m/m, Jul, 0.6%, est. 0.3% (prior -0.2%, revised 0.3%) | |
| Retail Sales Ex Auto, m/m, Jul, 0.5%, est. 0.3% (prior -0.2%, revised 0.1%) | |
| Retail Sales Ex Auto and Gas, Jul, 0.6%, est. 0.4% (prior -0.1%, revised 0.1%) | |
| 10:00 AM | NAHB Housing Market Index, est. 64 (prior 64) |
| Business Inventories, Jun est. 0.4% (prior 0.3%) | |
| 16:00 AM | Total Net TIC Flows, Jun, (prior 57.3b) |
| Net Long-Term TIC Flows, Jun, (prior 91.9b) |
Canadian Economic Data
There is no major economic data release for today.
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