Market Update Tsys trading slightly weaker, 10Y above 3.10%, (3.11 +1bp), tsy curve steeper led by long end which reached 3.245% in early trading, now 3.23% (+1.5bps). Crude surging above $72, Brent above $80 highest since June 2015 – crude inventories fell 1.4mln bbls last week according to DOE data, while the mkt deals with the prospects of a sharp drop in shipments from Iran. In Canada, GOCs are lower, curve steeper out to tens, 10Y 2.52% – the 10s30s curve inverted for the first time since 2007. The BOC auctions $3.0bln in 5Y notes at noon – reopened 2% Sep 1 23s with the Sep23/5Y roll 4.2/4 vs ~3bps when the bonds were first issued on April 4th. The ~20bp rise in five year yields to a seven year high 2.34% is supportive as is relatively attractive pick vs current 5s, as the M23/S22 is ~2.6bps.Provis remain well bid – Ontario 49 deal @ 76 now 74.5/74. CMB 10Y deal @ 37 yest well received, 36.5/36.
News headlines
Nafta Deadline Arrives With Little Prospect for an Agreement (Bloomberg) House Speaker Paul Ryan warned a new Nafta deal had to be completed by Thursday, but Donald Trump’s trade chief told lawmakers he expects that deadline will not be met. Citing American trade law, Ryan had said May 17 was the last day to receive notice of intent to sign a deal for a new North American Free Trade Agreement that could be passed by the current Congress before a new crop of lawmakers change the political calculus. Talks, however, remain hung up on key issues.
Trump Shows Flexibility on North Korea Talks (Bloomberg) The White House distanced itself from the hard-line North Korea stance of President Donald Trump’s top security adviser, indicating his administration is committed to keeping next month’s summit with Kim Jong Un on track. Press Secretary Sarah Huckabee Sanders told reporters Wednesday that she was “not aware” of the administration advocating a so-called Libya model, in which North Korea would quickly ship his nuclear weapons program to the U.S. North Korea had earlier attacked National Security Adviser John Bolton for trying “to force our unilateral nuclear abandonment” and threatened to walk away from the June 12 summit in Singapore.
EU Hardens Against Trump With United Stand on Trade and Iran (Bloomberg) European Union leaders presented a determined front to stand up to U.S. President Donald Trump’s threats to penalize EU businesses and scupper the Iran nuclear deal. As the bloc paved the way for retaliation, its 28 leaders meeting in the Bulgarian capital Sofia made a rare demonstration of unity in the face of what EU President Donald Tusk called the “capricious assertiveness” of the Trump administration.
Treasury Yield Hits 3.1%; Customs Talk Roils Pound: Markets Wrap (Bloomberg) Ten-year U.S. Treasury yields hit 3.1 percent on Thursday as global markets continued to adjust to an upbeat outlook for the world’s largest economy. The pound jumped but then erased the move amid conflicting reports over Britain’s future in the EU customs union. Treasuries pared an earlier drop to trade little changed, with the yield hovering around the 3.1 percent level. Italian notes led the retreat as most European bonds fell, extending their plunge from Tuesday as efforts to form a populist government drag on. Gilts followed suit and sterling wiped out all of its advance amid reported denials of a Telegraph story claiming the U.K. is prepared to stay in the customs union beyond 2021.
Stock futures little changed amid a rise in oil prices (Reuters) Stock futures pointed to a flat opening for Canada’s main stock index on Thursday even as oil prices hit $80 a barrel on concerns that Iranian exports could drop due to reimposed U.S. sanctions. June futures on the S&P TSX index were down 0.01 percent at 7:15 a.m. ET. March data on foreign investment in Canadian securities is scheduled for release at 8:30 a.m. ET. The Toronto Stock Exchange’s S&P/TSX rose 10.25 points, or 0.06 percent, to 16,108.06 on Wednesday.
Alberta passes bill allowing it to block oil shipments to B.C. (BNN) Alberta has passed landmark legislation giving it sweeping power to intervene in oil and gas exports that could result in punitive price spikes in British Columbia in the dispute over the Trans Mountain oil pipeline expansion. Premier Rachel Notley won’t say when and how the power will be used, but said she won’t wait long.
Manufacturing sales up 1.4%, signalling growth in economy (BNN) Canadian manufacturing sales rose a better-than-expected 1.4 per cent in March, as weakness in motor vehicle sales was more than offset by gains in the metals and aerospace industries, Statistics Canada reported Wednesday. Economists had expected an increase of 1.2 per cent, according to Thomson Reuters Eikon. Sales rose to $57.1 billion in March. Excluding motor vehicles, parts and accessories, Canadian manufacturing sales were $49.1 billion, up 1.8 per cent from February.
Two banks back Home Capital with new $500-million credit line (Toronto Star) Home Capital Group Inc., the Canadian alternative lender that was bailed out by Warren Buffett’s Berkshire Hathaway Inc., received a commitment for a new credit line from two banks as backing from the billionaire investor expires next month.
Overnight markets
Overview: US 10yr note futures are down -0.053% at 118-16, S&P 500 futures are down -0.17% at 2718.5, Crude oil futures are up 0.9% at $72.13, Gold futures are down -0.26% at $1288.1, DXY is up 0.11% at 93.494, CAD/USD is down -0.14% at 0.783.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.063% | 2 Year | 2.581% |
| 5 Year | 2.338% | 5 Year | 2.938% |
| 10 Year | 2.52% | 10 Year | 3.106% |
| 30 Year | 2.515% | 30 Year | 3.231% |
US Economic Data
| 8:30 AM | Initial Jobless Claims, May 12th 222k est 215k (211k prior) |
| Continuing Claims, May 5th 1707k est 1780k (1790k prior) | |
| Philadelphia Fed Business Outlook, May 34.4 est 21.0 (23.2 prior) | |
| 9:45 AM | Bloomberg Economic Expectations, May (52.5 prior) |
| Bloomberg Consumer Comfort, May 13th (55.8 prior) | |
| 10:00 AM | Leading Index, Apr est 0.4% (0.3% prior) |
Canadian Economic Data
| 8:30 AM | Int’l Securities Transactions, Mar (3.96b 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