Market Update
Tsys slightly weaker led by the 10Y rising above 2.63% for the first time since March 14th, curve steeper for a second day after 5bps selloff in longs yesterday. Fear of a govt shutdown weighing on stocks, giving a boost to tsys which are off the o/n lows. Core Euro bonds lower in line with tsys, 10Y bund 0.58%, closing in on the 0.60% level from last July. In Canada, despite BOC ‘dovish hike’, yields pressured higher led by the 10Y sector . The 5Y auction yest (March 2023 reopening) saw better than avg b/c with a 0.2bp tail. Longs continue to be bid on the curve, even as the tsy curve steepened 10s30s, the 10s30s Can/US box at a two month low. provis ended 1-2bps wider despie a well received 10Y Quebec issue @ 54 , now 56/55, QC/Ont 10Y unch -3.2bps. Primary mkt busy yest with H&R reit 5Y, Toyota 5Y & 2.5Y FRN , as well as Lloyds 7Y Maple @ 135 which broke 3bps tighter.
News headlines
U.S. House Passes Spending Bill to Avoid Government Shutdown, Senate in Doubt ( Bloomberg) The House passed a spending bill Thursday to avoid a U.S. government shutdown, but Senate Democrats say they have the votes to block the measure in a bid to force Republicans and President Donald Trump to include protection for young immigrants.
IEA Sees ‘Explosive’ Growth in U.S. Oil Output as Prices Rally (Bloomberg) OPEC’s fear that another surge of shale oil could neutralize its production cuts might be coming true. U.S. oil output is set for “explosive” growth this year as prices rally, the International Energy Agency said on Friday. That was just one of a chorus of voices from Goldman Sachs group Inc. to OPEC itself warning of a looming output surge reminiscent of the “heady days” of the first shale boom.
Morneau Was Reassured About Higher Canadian Rates Last Summer (Bloomberg) Canadian government officials reassured Finance Minister Bill Morneau last summer to not worry too much about coming hikes in interest rates, claiming they would be easily absorbed by the nation’s growing economy. In an analysis delivered to Morneau in August on the impact of higher rates, the finance department said the extent of likely increases — based on economist expectations at the time — would be gradual and take place within a backdrop of a growing economy.
White House Considers Fed Insider Williams for Vice Chair (Bloomberg) Long-time Federal Reserve insider John Williams has been interviewed by the White House for the post of vice chairman of the U.S. central bank, according to a person familiar with the discussions, though he was not viewed as being on the short-list for the job. Williams, 55, is currently president of the Fed’s regional bank in San Francisco, where he took the reins in 2011 from Janet Yellen, who went on to become Fed Chair. He began his Fed career in 1994 in Washington and has also lectured at Stanford University. Williams served as a senior economist in President Bill Clinton’s Council of Economic Advisers.
U.K. Retailers See Black Friday Hangover as Sales Slump (Bloomberg) U.K. retail sales fell the most in 18 months in December as a post-Black Friday lull rounded off a rough year for British shops. It’s further evidence that inflation and shaky consumer confidence are hitting British stores, many of whom remain cautious about the outlook for the coming year. Fourth quarter sales gained just 0.4 percent, half the pace seen in the previous three months.
Bond Markets’ Last Line of Resistance Faces Digital Encroachment (Bloomberg) Digital disruption, which has changed the face of trading equities, currencies and some government debt, is arriving at one of the last bastions of resistance: the syndicate desk, where corporate bonds are priced and distributed. Selling new issues is a linchpin of investment banks’ profitability. Bond arranging generated about $14 billion for the eight largest banks in the first three quarters of 2017, more than double the haul from equity underwriting, according to data compiled by Bloomberg Intelligence.
U.S. said to be losing patience over NAFTA talks (BNN) The U.S. is running out of patience with Canadian and Mexican resistance to key American proposals ahead of talks next week on a new North American Free Trade Agreement, two people familiar with the matter said. The U.S. is serious about its threat to withdraw from the North American Free Trade Agreement if there’s no breakthrough on proposals the Trump administration has made that are intended to rebalance trade, said one of the people, who spoke on condition of anonymity because the negotiations aren’t public. The Trump administration wants to see serious counteroffers to U.S. demands like tightening content requirements for cars.
Overnight markets
Overview: US 10yr note futures are down 0% at 122-15, S&P 500 futures are up 0.1% at 2799, Crude oil futures are down -1.34% at $63.09, Gold futures are up 0.59% at $1335, DXY is down -0.05% at 90.452, CAD/USD is up 0.19% at 0.8039.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.806% | 2 Year | 2.044% |
| 5 Year | 2.024% | 5 Year | 2.412% |
| 10 Year | 2.222% | 10 Year | 2.617% |
| 30 Year | 2.351% | 30 Year | 2.895% |
US Economic Data
| 10:00 AM | University of Michigan Sentiment, Jan P est 97.0 (95.9 prior) |
| University of Michigan Current Condition, Jan P, est. 114.4 (prior 113.8) | |
| University of Michigan Expectations, Jan P, est. 85.3 (prior 84.3) | |
| University of Michigan 1 year inflation, Jan P, (prior 2.7%) | |
| University of Michigan 5-10 year inflation, Jan P, (prior 2.4%) |
Canadian Economic Data
| 8:30 AM | Manufacturing Sales MoM, Nov % est 2.0% (-0.4% 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