Market Update

US tsys lower , US 10Y 2.77% (+1bp), prices off the highs of the o/n session which saw the 10Y dip below 2.75%, curve flatter with longs outperforming. Equity futures higher (S&P +4) after yesterday’s post FOMC plunge brought US indices to the lowest levels since Sep 2017 – markets were clearly expecting a more dovish tilt to the stmt & press conf. Weekly claims and Phili Fed today with Q3 GDP tomorrow. GOCs slightly lower, 10Y 1.96%, curve 0.5bps steeper.  The GOC curve 3bps flatter on the week led by 5s, a weak CPI yest benefitting 5s on the curve , with the mkt trading sideways until the FOMC , after which GOCs spiked higher, outpeforming tsys  1-2bps in the rally. Today the BOC auctions $2.0bln of 0.5% March 2022 ($15bln outstanding)  with the yield having fallen to 1.90% yest, the lowest since June. The Mar 22/Nov 20 roll @ 3bps has traded cheaper over the past two weeks (~2bps), and Mar 22s look cheap in the context of a flat 2s5s curve.

News headlines

Fed Raises Rates, Turns More Cautious on Outlook for 2019 Hikes (Bloomberg) The Federal Reserve raised borrowing costs for the fourth time this year, looking through a stock-market selloff and defying pressure to hold off from President Donald Trump, while dialing back projections for interest rates and economic growth in 2019. By trimming the number of rate hikes they foresee in 2019, to two from three, policy makers signaled they may soon pause their monetary tightening campaign. Officials had a median projection of one move in 2020.

Mueller to Save Trump for Later as Prosecutor Readies Next Steps (Bloomberg) Special Counsel Robert Mueller will be cautious about implicating President Donald Trump– or even a thinly disguised “Individual-1” — directly in criminal activity in legal filings he’s expected to issue in the next few months, according to people familiar with his investigation. Mueller is planning to continue building out his case brick-by-brick in a set of legal filings, as he offers his most detailed narrative yet of Russia’s election interference. That will include identifying any Americans who may have conspired with Russia to affect the 2016 election and what Russians hoped to get in return, the people said. Mueller is also looking into whether the president sought to obstruct justice.

BOE Keeps Interest Rate on Hold as Brexit Uncertainty Rises (Bloomberg) The Bank of England said the uncertainty around Britain’s divorce from the European Union was intensifying as it kept interest rates unchanged. The Monetary Policy Committee, led by Governor Mark Carney, voted 9-0 to hold the benchmark at 0.75 percent. All but one of the 61 economists in a Bloomberg survey correctly predicted Thursday’s decision.

U.S. Futures Advance as Europe, Asia Stocks Fall: Markets Wrap (Bloomberg) U.S. equity futures reversed an earlier decline on Thursday while stocks in Europe and Asia came off their lows as markets showed signs of steadying in the wake of the Federal Reserve decision a day earlier. The dollar slumped and the yen rallied. Contracts on the S&P 500, Dow and Nasdaq all turned green after underlying gauges slumped on Wednesday when Fed Chairman Jerome Powell committed to keep reversing quantitative easing and downplayed of the implications of market volatility. The Stoxx Europe 600 recovered some losses but remained broadly lower, while Japanese shares slid into a bear market.

Canada expands steel, aluminum tariff exemptions (Reuters) Canada said on Wednesday it will exclude some imported steel and aluminum from its newest import tariffs and quotas following a request from the construction industry in British Columbia, which depends on imported metal. The government also said it would give additional relief to some companies that have contractual obligations. In Canada, automakers frequently buy U.S. steel under contract, import and distribute it to their Canadian suppliers as well as their own plants, but it was not immediately clear which companies would be affected.

Markets suffer worst year since global financial crisis (Reuters) Traders will be glad to see the back of 2018. Nearly $7 trillion has been wiped off world stocks, emerging markets have been trampled flat by a charging dollar and even gold and U.S. government bonds have lost money. A grisly combination of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in former hot spots has wiped 10 percent off MSCI’s 47-country world stocks index .MIWD00000PUS — its first double-digit loss in any year since the 2008 global financial crisis.

Politics won’t be a factor in Huawei 5G decision: Trudeau (BNN) Canada’s decision on whether to allow Huawei Technologies Co. access to its next-generation wireless network won’t be a political one, Justin Trudeau said. The prime minister’s comments, made Wednesday at a year-end news conference in Ottawa, come amid heightened tensions with Beijing. Three Canadians have been detained in China since the arrest of a top Huawei executive in Vancouver on a U.S. extradition request earlier this month. The firm is racing to develop 5G technology, the fifth-generation mobile network that could be 100 times faster than existing standards. Australia and New Zealand have effectively banned Huawei from their grids, while the U.K and Germany are being pressed to follow suit over concerns the gear could be exploited by China’s spy agencies.

Aleafia to buy Emblem in $173M all-stock deal as pot M&A activity warms up (BNN) Aleafia Health Inc. (ALEF.V) is acquiring Emblem Corp. (EMC.V) in an all-stock deal worth $173 million, a deal that marks the first significant cannabis industry takeover since Canada legalized recreational pot in October. The deal will combine two mid-tier cannabis producers into a significant player in the medical marijuana space while providing Aleafia with an entry into the nascent recreational cannabis market that Emblem already operates in.

Overnight markets

Overview: US 10yr note futures are down -0.026% at 121-05, S&P 500 futures are up 0.15% at 2508.25, Crude oil futures are down -3.49% at $46.49, Gold futures are up 0.27% at $1259.8, DXY is down -0.63% at 96.428, CAD/USD is down -0.16% at 0.743.

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.882% 2 Year 2.656%
5 Year 1.893% 5 Year 2.639%
10 Year 1.963% 10 Year 2.767%
30 Year 2.12% 30 Year 2.982%

US Economic Data

8:30 AM Philadelphia Fed Business Outlook, Dec est 15.0 (12.9% prior)
  Initial Jobless Claims, Dec 15th est 215k (206k prior)
  Continuing Claims, Dec 8th est 1663k (1661k prior)
9:45 AM Bloomberg Consumer Comfort, Dec 16th (59.4 prior)
  Bloomberg Economic Expectations, Dec (56.0 prior)
10:00 AM Leading Index, Nov est 0.0% (0.1% prior)

Canadian Economic Data

8:30 AM Wholesale Trade Sales MoM, Oct est 0.4% (-0.5% 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

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilieres Inc.

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