Market Update Tsys trading lower, US 10Y 3.074% (+1.5bps), on heavy volume in TY futures (475k), risk-on as Italian bonds rally and news that China will cut import tariffs on imported autos to 15% from 20-25%. Euro equities/S&P futures are higher, USD index 0.25% lower. Core EGBs selling off on positive sentiment re periphery, 10Y BTP/bund spd ~12bps narrower @173bps, 10Y bund +4bps @ 1.51%. Rally in crude weighing on fixed income as well, WTI extending three year high, now 72.60 after new US sanctions announced on Venezuela. The US auctions $22bln in 2Y notes this afternoon. In Canada, GOCs are lower, underperforming tsys across the curve , GOC curve 1bp steeper 2s10s, 10s30s barely positive 0.5/0.2, Can 27s continuing to cheapen on the butterfly vs 26s/28s with the 10Y roll 0.3/0.2. The BOC will auction $1bln in 30Y bonds tomorrow, reopening the 2% Dec 51 issue ($1.5bln out), 51/48 roll -0.2/-0.3 – we expect the auction to go relatively smoothly given the roll has been fairly stable in a flattening environment while the June1/2nd extension supports the bid in the back end.
News headlines
Trump Willing to Wait for Good Nafta Deal, Whatever That Is (Bloomberg) With about two weeks left until what may be the final deadline for a new Nafta this year, Mexico and Canada are signaling there’s a deal to be had — if President Donald Trump wants one. U.S. Treasury Secretary Steven Mnuchin, speaking in an interview on Fox News Sunday, said Trump’s priority is getting a good deal, even if it means disregarding “any deadlines” to let current lawmakers approve it. That would leave a vote to the next Congress, which Trump’s Republican Party may no longer control after November’s midterm elections.
China Makes Massive Cut to Car Tariffs After Truce With Trump (Bloomberg) China will cut the import duty on passenger cars to 15 percent, further opening up a market that’s been a chief target of the U.S. in its trade fight with the world’s second-largest economy. The Finance Ministry said Tuesday the levy will be lowered effective July 1 from the current 25 percent that has been in place for more than a decade, boosting shares of automakers from India to Europe. Bloomberg News reported last month that China was weighing proposals to reduce the car import levy to 10 percent or 15 percent.
Trump Set to Meet South Korea’s Moon as Doubts Shroud Kim Summit (Bloomberg) South Korean President Moon Jae-in, a champion of talks between the U.S. and North Korea, will look to restore momentum for an unprecedented summit between the foes in a White House visit on Tuesday. Optimism for next month’s meeting in Singapore between President Donald Trump and leader Kim Jong Un was punctured last week by a North Korean threat to walk away if the U.S. makes a “one-sided demand” for the regime to surrender its nuclear weapons. The New York Times reported that Trump was “surprised and angered” by that statement, and indicated he could pull out.
Stocks Rise as Risk-On Creeps Back; Italy Bonds Up: Markets Wrap (Bloomberg) A degree of risk appetite returned to global markets on Tuesday, with developing-nation stocks and currencies rebounding and the euro climbing with Italian bonds. The dollar fell as Treasury yields climbed, and the pound advanced. U.S. equity futures pointed to a higher open and the Stoxx Europe 600 Index nudged upward after the MSCI Asia Pacific gauge eked out a gain in a mixed session earlier. Emerging stocks were the stand out, ending a three-day losing streak. The euro swung from a loss to a gain as investors weigh the chances Italy’s president will seek to curtail a potential populist government, while the country’s bonds rebounded from a two-day slide. The Turkish lira fell to yet another record low. Sterling strengthened amid speculation there could be another U.K. election and after upbeat comments from a Bank of England policymaker.
TSX futures lifted by higher oil prices (Reuters) Stock futures pointed to a higher opening for Canada’s main stock index on Tuesday as oil prices rose toward $80 per barrel on concerns about declining Venezuelan output and a possible fall in Iranian exports. June futures on the S&P TSX index were up 0.25 percent at 7:15 a.m. ET. Wholesale trade data for March is due at 8:30 a.m. ET and is expected to show a rise of 0.6 percent. The Toronto Stock Exchange’s S&P/TSX rose 18.76 points, or 0.12 percent, to 16,162.31 on Friday, extending its recent streak of higher closes to an 11th day. Canadian markets were closed on Monday for Victoria Day.
Canada granting refugee status to fewer illegal border crossers (Reuters) Canada is rejecting more refugee claims from people who crossed the border illegally as Prime Minister Justin Trudeau’s government seeks to dissuade, block and turn back thousands more, according to new data obtained by Reuters.
Canadian retail sales post strongest gain in five months on autos (BNN) Canadian retailers recorded their largest sales gain in five months in March, as the nation’s households continued their car buying binge. Receipts were up 0.6 per cent during the month, as sales in the auto sector jumped 3 per cent, Statistics Canada reported Friday. Economists were anticipating a 0.3 per cent gain in sales. It was a strong end to a quarter for retailers, after a sluggish start to a year — a rebound that may ease concerns about any dramatic pullback in spending by consumers. Even with the higher sales in March, receipts in the first quarter were down from the last three months of 2017, the first quarterly decline since 2015.
Overnight markets
Overview: US 10yr note futures are down -0.066% at 118-25, S&P 500 futures are up 0.18% at 2738, Crude oil futures are up 0.26% at $72.43, Gold futures are up 0.26% at $1294.3, DXY is down -0.31% at 93.39, CAD/USD is down -0.15% at 0.7831.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.045% | 2 Year | 2.574% |
| 5 Year | 2.318% | 5 Year | 2.909% |
| 10 Year | 2.51% | 10 Year | 3.074% |
| 30 Year | 2.513% | 30 Year | 3.211% |
US Economic Data
| 10:00 AM | Richmond Fed Manufact. Index, May est 10 (-3 prior) |
Canadian Economic Data
| 8:30 AM | Wholesale Trade Sales MoM, Mar 1.1% est 0.9% (-0.8% prior) |
| 10:00 AM | Bloomberg Nanos Confidence, May 18th (58.2 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