Market Update
US tsys mixed, curve 3bps steeper with the 30Y +2.5bps @2.38, 10Y 2.367 (+1bp), . Tsys saw mild bid in Asia after Yellen noted there was ‘some hint’ inflation expectations were drifting lower. Prices reverted to o/n lows in Europe with German bunds as ECB member Coeure sounded hawkish in interview with German newspaper saying the link between QE and inflation could be loosened before Sep, questions effectiveness of APP on inflation. German 2s10s bund curve ~1bp flatter @ 106 – the narrowest since July, the UST curve close to flattest in a decade. Gilt curve also flattening after UK budget lowers 2018 growth forecast but raises total borrowings by 0.9bln to Stg 115.1bln. In Canada, GOCs unch, lagging the steepening in the US, Can/US 2Y ~2bps wider @ -29bps close to richest levels since July before today’s 2Y auction $3.6bln reopened Feb 20s with the roll 3.1/2.9 . The relative attraction of our front end vs the US is not as apparent after steady outperformance since Oct yet the roll vs 2s looks cheap @3bps given it has averaged ~2.5bps over the past month. Provincials in focus – Ontario 10Y yest @ 62, now 60/59 – strong demand across the curve. QC/Ont 48 -1/-1.2 unch, Quebec fiscal update announced $1.1bln in tax cuts, with 2017-18 borrowing set to increase from $11.3bln to $14.8bln. No impact on spreads. Upcoming index extension is expected to be a tailwind for long provis – the provi index is expected to rise ~0.03 yrs in Dec, accounting for half of the universe 0.06 yr increase.
News headlines
Fed Debate Over Rate-Hike Pace in Focus Amid Strong Job Market (Bloomberg) Federal Reserve officials have penciled in a gradual path for raising interest rates, but minutes of their last meeting may show increasing concern that the U.S. labor market is overheating.
Dollar, Bonds Slip as Stocks Climb; Pound Retreats: Markets Wrap (Bloomberg) The dollar edged lower with Treasuries after Federal Reserve Chair Janet Yellen warned against rapid interest rate increases. European government bonds also fell, while stocks in the region tracked a global rally. The pound fell as investors digested the U.K. budget.
U.K. Budget Deficit Widens as Inflation Boosts Debt Costs (Bloomberg) Britain’s fiscal deficit unexpectedly widened as inflation saw debt costs rise to the highest for any October in four years. Net borrowing was 8 billion pounds ($10.6 billion) compared with 7.5 billion pounds a year earlier, the Office for National Statistics said Tuesday. Economists had expected it to narrow to 7.1 billion pounds, the median estimate in a Bloomberg survey showed.
Oil Climbs to Two-Year High as Stockpiles Fall Before OPEC Meets (Bloomberg) Oil climbed to a two-year high as U.S. industry data showed crude stockpiles resumed declines and investors awaited a decision by OPEC on extending output cuts. January futures rose as much as 2.2 percent in New York, the highest since mid-2015. U.S. inventories fell by 6.36 million barrels last week, the American Petroleum Institute was said to report. That’s more than forecast in a Bloomberg survey, which shows a drop of 2.2 million barrels ahead of government data later Wednesday.
S&P 500 Hits Record; Nafta Progress Boosts Peso: Markets Wrap (Bloomberg) U.S. stocks hit a new high, while the Canadian dollar and Mexican peso scored gains after a report of progress in negotiations over the North American Free Trade Agreement.
US existing home sales increase more than expected (CNBC) U.S. home sales increased more than expected in October as hurricane-related disruptions dissipated, but a chronic shortage of houses which is pushing prices beyond the reach of some first-time buyers remains an obstacle.
Grocer Metro Inc. reports fourth-quarter profit up from year ago, sales higher (Canadian Press) Metro Inc. says it earned $154.9 million in its fourth quarter up from $145.0 million a year ago. The grocer (TSX:MRU) says the profit amounted to 66 cents per diluted share for the quarter which included an extra week compared with the fourth quarter last year when it earned 60 cents per diluted share. Sales totalled $3.23 billion, up from $2.93 billion, while same store sales gained 0.4 per cent.
Quebec to monitor property sales to foreign buyers, no tax planned (Reuters) Quebec said on Tuesday it plans to monitor the sale of property to and by foreign investors in the Canadian province by requiring the address of their primary residences in a bid to track overseas inflows into the real estate market.
Overnight markets
Overview: US 10yr note futures are up 0.025% at 124-23, S&P 500 futures are up 0.1% at 2598.75, Crude oil futures are up 1.85% at $57.88, Gold futures are up 0.23% at $1284.6, DXY is down -0.11% at 93.844, CAD/USD is down -0.25% at 0.7846.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.464% | 2 Year | 1.76% |
| 5 Year | 1.653% | 5 Year | 2.095% |
| 10 Year | 1.92% | 10 Year | 2.365% |
| 30 Year | 2.263% | 30 Year | 2.78% |
US Economic Data
| 7:00 AM | MBA Mortgage Applications, Nov 17th 0.1% (3.1% prior) |
| 8:30 AM | Initial Jobless Claims, Nov 18th 239k est 240k (249k prior) |
| Continuing Claims, Nov 11th 1904k est 1880k (1860k prior) | |
| Durable Goods Orders, Oct -1.2% est 0.3% (2.0% prior) | |
| Durable Ex Transportation, Oct 0.4% est 0.5% (0.7% prior) | |
| Cap Goods Orders Nondef Ex Air, Oct -0.5% est 0.5% (1.7% prior) | |
| Cap Goods Ship Nondef Ex Air, Oct 0.4% est 0.3% (0.9% prior) | |
| 9:45 AM | Bloomberg Consumer Comfort, Nov 19th est 98.0 (97.8 prior) |
| 10:00 AM | U. of Mich. Sentiment, Nov est 98.0 (97.8 prior) |
| 14:00 PM | FOMC Meeting Minutes |
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