Market Update US Treasuries have rallied with higher during the European morning session, underpinned by risk-off sentiment on a combination of Italian political concerns, a renewal of US-China trade tensions, weak data, and emerging market assets under pressure. 10-yr Tsy yield is -5.1bp at 3.008%- The 5-yr and 7-yr part of the yield curve has led the rally, leading to 2s5s flattening by 3.5bps to 29.1bps, and 5s30s steepening by 1.5bps to 32.2bps. US Tsys edged higher in the main, as risk off trade dominated the Asia-Pacific session on US/China trade differences and that talk of US summit with North Korean leader Kim Jung-Un might be delayed. Data on tap includes home sales, $36B 5Y auction followed by May FOMC minutes at 1hpm. Sentiment has deteriorated due to multiple factors, including the continuing saga over the appointment of a new Italian Prime Minister and potential eurosceptics in line for Finance; hawkish US President Trump comments Tuesday on China and North Korea; and emerging markets` continuing meltdown (esp Turkey).
News headlines
Stocks Fall, Bonds Gain as Risks Mount; Euro Drops: Markets Wrap (Bloomberg) Shares in Europe followed Asian counterparts lower as storm clouds gathered from Turkey to North Korea and data cast doubts on economic growth prospects for the euro area. Treasuries advanced with the dollar, while oil dropped with most commodities. The Stoxx Europe 600 Index sank by the most in two months alongside U.S. equity-index futures, as optimism over U.S.-China trade talks faded together with prospects for President Donald Trump’s summit with North Korea’s leader. Concerns over Turkey’s financial-market stability drove the lira to successive record lows and weighed on emerging-market assets. The yen and core European bonds gained and gold jumped as traders sought havens after equity benchmarks from Hong Kong to Sydney declined.
Fed Minutes to Detail Views on Inflation Overshoot, Yield Curve (Bloomberg) Divisions among Federal Reserve officials over the yield curve and inflation will be under scrutiny on Wednesday when the U.S. central bank releases minutes of its policy meeting at the start of the month. While the Federal Open Market Committee left interest rates unchanged at the May 1-2 session, new information on how officials discussed those topics could help analysts gauge how many additional hikes are likely this year. The Fed lifted its benchmark rate in March and another move is widely expected in June. Odds are currently about split between the probabilities for three and four increases over the year as a whole, according to pricing of federal funds futures contracts.
Euro-Area Economy Awaits Rebound Suppressed by Temporary Factors (Bloomberg) The euro-area economic rebound expected this quarter remains out of reach for now. After bad weather, strikes and a flu epidemic weighed on growth at the start of the year, manufacturing and services suffered another setback in May, when an unusual number of public holidays damped orders. In a sign that investors are getting impatient with the 19-nation economy, the single currency fell to the lowest level since November.
North Korea Gets Ready to Destroy Its Main Nuclear Test Site (Bloomberg) North Korea is preparing blow up its main nuclear-weapons test site in the next day or two, even as U.S. President Donald Trump raises new doubts about the prospects of a nuclear deal with Kim Jong Un. A selection of journalists representing Chinese, Russian, South Korean, U.K. and U.S. media organizations were traveling to the site in mountainous area of Punggye-ri to witness the event. North Korea said the detonations were intended to put out of use the tunnels used for all six of the isolated nation’s nuclear tests.
Canada says top NAFTA officials in constant contact on trade talks (Reuters) Top U.S., Canadian and Mexican officials are in constant contact about slow-moving talks to revitalize NAFTA and are ready to meet at any time to push the process forwards, Canada’s foreign minister said on Tuesday. Negotiations to update the North American Free Trade Agreement have stalled as Canada and Mexico try to digest U.S. demands for major changes.
TSX futures drop as oil prices slip (Reuters) Futures for Canada’s main stock index were lower on Wednesday as oil prices dropped on expectations that OPEC may increase crude output to cover any supply shortages from Venezuela and Iran. June futures on the S&P TSX index were down 0.44 percent at 7:15 a.m. ET. Canada’s main stock index edged lower on Tuesday, breaking its longest winning run in more than four years as shares of energy and materials companies lost ground.
CIBC blows past estimates as second-quarter profit surges 26% (BNN) Canadian Imperial Bank of Commerce kickstarted bank earnings season on Wednesday with a big profit beat powered by double-digit growth in its core Canadian banking division. CIBC earned $1.32 billion in its fiscal second quarter. On an adjusted basis, profit surged 26 per cent year-over-year to $1.35 billion.
Turkey heads toward a currency crisis as lira goes into freefall (BNN) Turkey is entering the grips of a full-blown currency crisis. The lira was already on course for its worst month since 2008 when it plunged to a new record Wednesday, a sign that the central bank’s apparent refusal to step in is giving traders free rein to bet against it. It sank as much as 5.2 per cent. Policy makers “must hike now,” said Cristian Maggio, the head of emerging-market strategy at TD Securities in London. “There’s no limit to how far this could go because this is becoming a currency crisis.” Eventually, Turks will start selling too, and then there will be “total loss of confidence,” he said.
Overnight markets
Overview: US 10yr note futures are up 0.368% at 119-10, S&P 500 futures are down -0.63% at 2708.75, Crude oil futures are down -0.64% at $71.74, Gold futures are up 0.17% at $1299.6, DXY is up 0.44% at 94.02, CAD/USD is up 0.74% at 0.7744.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.021% | 2 Year | 2.552% |
| 5 Year | 2.266% | 5 Year | 2.844% |
| 10 Year | 2.443% | 10 Year | 3.006% |
| 30 Year | 2.467% | 30 Year | 3.161% |
US Economic Data
| 7:00 AM | MBA Mortgage Applications, May 18th -2.6% (-2.7% prior) |
| 9:45 AM | Markit US Manufacturing PMI, May est 56.5 (56.5 prior) |
| Markit US Services PMI, May est 55.0 (54.6 prior) | |
| Markit US Composite PMI, May (54.9 prior) | |
| 10:00 AM | New Home Sales, Apr est 680k (694k prior) |
| New Home Sales MoM, est -2.1% (4.0% prior) | |
| 14:00 AM | FOMC Meeting Minutes, May 2nd |
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