Market Update Tsys sharply higher in risk off, heavy volume in treasury futures ( 645k TY), US 10Y 2.88% (-3.5bps) lowest since June 1st. USD index firmer , DXY 95.26 (+0.51) , S&P futures -29 (-1.0%). China/US trade war intensified overnight with US announcing 10% tariff on USD 200bln in Chinese goods. Core EGBs also sharply higher, GOCs outperforming tsys by 0.5-1bps with the CAD at a new year low. Provincial spreads firm despite the move lower in GOC yields. 

News headlines

China Vows to Retaliate as Trump Targets $200 Billion in Tariffs (Bloomberg) Trade tensions between the world’s two biggest economies intensified, with China vowing to retaliate « forcefully » against President Donald Trump’s threatened tariffs on another $200 billion in Chinese imports. « If the U.S. loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures, » according to a statement from the Ministry of Commerce. It labeled the move « extreme pressure and blackmail, » and said it would retaliate with counter measures.

U.S. Homes Are a Lot Cheaper Than They Look, Harvard Study Finds (Bloomberg) Despite the long, stratospheric rise of home prices in the U.S., the inflation-adjusted monthly payment on the median single-family home in 2017 was less than in 1987, when home prices were lower but interest rates were higher, Harvard University’s Joint Center for Housing Studies found.

Trudeau Has Billions of Reasons to Dig In Against Trump on Dairy (Bloomberg) Justin Trudeau’s defense of Canadian dairy tariffs isn’t just about farmers and politics — it’s about debt, too. The prime minister squared off with Donald Trump this month over Canada’s “supply management” system, which sets quotas for dairy, eggs and poultry and charges high tariffs above that threshold. Despite a U.S. surplus on dairy trade with Canada, the president wants to blow apart the Canadian system.

Deepening Trade Dispute Triggers Risk-Off Moves: Markets Wrap (Bloomberg) Investors dumped riskier assets and headed toward havens on Tuesday as a trade dispute between the world’s two largest economies showed signs of deepening and accelerating. Stocks dropped, Treasuries rallied and the dollar climbed with the yen. The Stoxx Europe 600 retreated for a third day and U.S. equity futures slumped, tracking losses across Asia, where Chinese shares plunged after reopening following a holiday. President Donald Trump warned America will slap tariffs on more Chinese goods, and the Asian nation threatened retaliation. The stock move in Europe was tempered by a weaker euro, however, which dropped after the latest’s dovish message from ECB President Mario Draghi. The British pound was also under pressure as U.K. Prime Minister Theresa May prepares for another knife-edge Brexit vote on Wednesday.

Canada mulls auto firms aid in response to U.S. tariffs threat (Reuters) Canada is considering all options, including providing financial aid to the auto industry, to cope up with possible U.S. tariffs, a senior federal minister said, even as officials expressed doubt Washington would follow through with a threat to impose the punitive measures. U.S. President Donald Trump last month said he might impose tariffs of up to 25 percent on foreign-built automobiles, which could cause major economic damage to Canada and a heavily integrated North American industry.

Futures lower as U.S.-China trade spat escalates (Reuters) Futures pointed to a lower opening for Canada’s main stock index on Tuesday as the latest tariff threat on Chinese goods by the United States intensified a trade dispute between the world’s two largest economies. U.S. President Donald Trump on Monday threatened to impose a 10 percent tariff on $200 billion of Chinese goods to which Beijing warned it would fight back with “qualitative” and “quantitative” measures.

Bombardier shares top $5 for first time since 2013 on Goldman boost (BNN) Shares in Bombardier Inc. surged above $5 for the first time in nearly five years Monday, after a Goldman Sachs analyst upgraded the stock to a “buy” citing an “impressive” operational turnaround.   Goldman Sachs analyst Noah Poponak raised Bombardier’s price target to $7 per share after reinstating coverage of the stock, pointing to the growth potential in Bombardier’s large cabin business jets and high expectations for CSeries orders.

Bank of Canada calls on markets to prepare for benchmark changes (BNN) The Bank of Canada called on financial institutions to get up to speed on changes that global regulators are making to interest rate benchmarks that underpin trillions of dollars in securities. In an update on the Canadian central bank’s work on the issue of benchmarks, Deputy Governor Lynn Patterson said financial organizations need to begin considering their “readiness” for coming changes, including potential enhancements to the current benchmark regime in Canada.

Overnight markets

Overview: US 10yr note futures are up 0.3% at 119-31, S&P 500 futures are down -1.07% at 2750, Crude oil futures are down -1.67% at $64.75, Gold futures are down -0.4% at $1275, DXY is up 0.49% at 95.22, CAD/USD is up 0.56% at 0.7533.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.838% 2 Year 2.52%
5 Year 2.02% 5 Year 2.752%
10 Year 2.153% 10 Year 2.88%
30 Year 2.202% 30 Year 3.017%

US Economic Data

8:30 AM Housing Starts, May 1350k est 1311k (1287k prior)
  Housing Starts MoM, May 5.0% est 1.9% (-3.7% prior)
  Building Permits, May 1301k est 1350k (1352k prior)
  Building Permits MoM, May -4.6% est -1.0% (-1.8% prior)

Canadian Economic Data

There is no Canadian Economic Data 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, Hugues Savard

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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