Market Update

US tsys trading higher, yields 1-1.5bps lower led by the 3/5 year, with the 10Y 2.22 (-1bp).  US equity futures up slightly (1.5pts), crude extending gains above $50 as Iraq has raised the prospect of further production cuts while refiners delay maintenance on facilities. European govt bonds higher led by the peripherals on Reuters story that ECB is considering maintaining QE beyond October, the strong Euro’s dampening impact on inflation a concern to those ‘doves’ on the governing council. The Federal Reserve begins its two-day meeting with odds of a third rate hike having moved to 50% from ~30% at the start of the month. GOCs unch, 10Y 2.08% – big reversal yesterday afternoon after BOC Deputy Lane said the Bank was closely monitoring strength in the CAD. Ontario longs trading down @82.5 ,  ongoing talk of supply from BC & Alberta.

News headlines 

Wall Street’s Bond Gurus Have the Fed’s Balance-Sheet Unwind All Wrong (Bloomberg) On Wall Street, the conventional wisdom is that once the Federal Reserve finally starts to whittle down its crisis-era debt investments, U.S. Treasury yields will have nowhere to go but up. But to some bond investors, history suggests the consensus couldn’t be more wrong. During each of the Fed’s quantitative-easing cycles, yields rose when the central bank was buying and then fell after it stopped. That ran counter to what many expected based on simple supply and demand as the Fed amassed $4.5 trillion of debt and became the single biggest holder of Treasuries.

UK’s May to press Trump this week on Boeing/Bombardier dispute (Reuters) British Prime Minister Theresa May said on Monday she would press U.S. President Donald Trump this week about a trade challenge by Boeing Co that could endanger thousands of aerospace jobs in Northern Ireland. May and Prime Minister Justin Trudeau are worried about Boeing’s move against Bombardier Inc, which is the single largest manufacturing employer in Northern Ireland and Canada’s most important aerospace firm.

Carney Says U.K. Rate Hike Looms in Brexit-Hobbled Economy (Bloomberg) Brexit, which prompted Mark Carney to cut U.K. interest rates for the first time in seven years in 2016, is now pushing in the other direction. In a speech in Washington on Monday, the Bank of England governor said while the decision to leave the European Union has slowed growth, it’s also cut the economy’s potential. That reduced “speed limit” — as he has described it — increases the chance of overheating and partly explains why the Monetary Policy Committee now says it may need to raise rates soon.

German investor morale unfazed by election, stronger euro (Reuters) German investor morale is unfazed by Sunday’s federal election and a strengthening of the euro, the ZEW institute said on Tuesday after publishing an index which showed morale had improved in September. Financial market experts are more upbeat because of Germany’s solid economic growth figures in the second quarter, a surge in bank lending and increased investment by both the government and private firms, ZEW head Achim Wambach said.

Markets Are Betting That Japan’s Abe Would Win If Snap Election Is Called (Bloomberg) Markets are suggesting that any snap election called by Japanese Prime Minister Shinzo Abe would take advantage of his opponents’ weakness and see him retain power. A victory would ensure the continuation of Abenomics, the recipe of mega monetary easing, flexible fiscal policy and selective deregulation that’s helped Japan’s economy to its longest sustained expansion since before the global crisis. Abe, who’s expected to decide on the early ballot after returning from a U.S. trip, is capitalizing on growing public support for his management of the North Korean crisis.

Flattest Curve in Developed World Tells the Bond Market’s Tale (Bloomberg) Canada’s two-to-30-year spread is narrower than Japan’s Inflation ‘dead for so long’ it’s hard to see it returning. To get a sense of how blasé investors are about inflation look no further than Canada, which sports both the fastest growth among its developed peers and the flattest yield curve.

Russia and Belarus Hold Joint Drills, and Tensions Emerge (WSJ) War games that Russia and neighboring Belarus are currently staging have sharpened tensions with the West—and exposed a rift between Moscow and its closest military ally.

Overnight markets 

Overview: US 10yr note futures are up 0.025% at 126-04, S&P 500 futures are up 0.05% at 2504, Crude oil futures are up 0.96% at $50.39, Gold futures are up 0.05% at $1311.4, DXY is down -0.21% at 91.853, CAD/USD is down -0.16% at 0.8149.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.559% 2 Year 1.389%
5 Year 1.77% 5 Year 1.817%
10 Year 2.081% 10 Year 2.225%
30 Year 2.442% 30 Year 2.801%

US Economic Data 

8:30 AM Housing Starts, Aug, 1180k, est. 1174k (prior 1155k, revised 1190k)
Housing Starts, m/m, Aug, -0.8%,  est. 1.7% (prior -4.8%, revised -2.2%)
Building Permits, Aug, 1300k, est. 1220k (prior 1223k, revised 1230k)
Building Permits, m/m, Aug, 5.7%, est. -0.8% (prior -4.8%, revised -3.5%)
Current Account Balance, 2Q,  -$123.1b, est. -$116.0b (prior -$116.8b, revised -$113.5b)
Import Price Index, m/m, Aug, 0.6%, est. 0.4% (prior 0.1%)
Import Price Index, y/y, Aug, 2.1%, est. 2.2% (prior 1.5%)

Canadian Economic Data 

8:30 AM Manufacturing Sales, m/m, Jul, -2.6%, est. -1.9% (prior -1.8%, revised -1.9%)


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

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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