Market Update

Tsys slightly higher, US 10Y 2.276%, curve flatter, prices bid in Asia on Moody’s China downgrade. In Europe EGBs rose after good German auction. FOMC minutes the main focus for tsys this aft. GOCs higher, outperforming tsys by ~1bp before the BOC this  at 10:00am not expecting any changes, mkts still expect next move to be a rate hike – yet odds have faded appreciably over the past month. Busy day for corp issuance yest – CNQ issued USD$3bln across 5,10 & 30Y tranches – US$1bn 5yr at T+115bp, US$1.25bn 10yr at T+160bp , US$750m 30yr at T+200bp – 25-30 bps tighter than IPT! (140,185bp ,230bp). CNQ also priced CAD $1.8bln in  June 20s, Dec 26s & May 37s @ 125, 200.5 & 270.  GM Finance issued $400mln 5Y @ 162, Manulife Bank priced $500mln 5Y dep note @ 106.8 or ~25 over bank dep notes.  Provis tighter again yest despite the heavy corp supply & lower cda yields, Ont 27s 73.5/73 back to the lows of April, Ont 48s 83.5 vs 88.5 last week and the Ont 48/27 curve 0.5bps flatter as well indicating strong demand for long term provis.

News headlines 

Stocks, Currencies Hit Pause on Wait for Fed Clues: Markets Wrap (Bloomberg) European stocks struggled to maintain gains and U.S. equity futures and the dollar both traded sideways as investors awaited fresh insight from the Fed on the path for borrowing costs in the world’s biggest economy. China’s credit-rating downgrade sank industrial metals.

Moody’s downgrades China, warns of fading financial strength as debt mounts (Reuters) Moody’s Investors Service downgraded China’s credit ratings on Wednesday for the first time in nearly 30 years, saying it expects the financial strength of the economy will erode in coming years as growth slows and debt continues to rise.

OPEC Wants to Carry on Pumping Less and Earning More (Bloomberg) At first glance, OPEC’s cuts haven’t worked — global oil inventories remain well above normal levels. But the policy’s made a difference where it really counts: juicing the coffers of finance ministries from Baghdad to Caracas.

U.S. rate hike in June ‘a distinct possibility’ -Fed’s Harker (Reuters) A U.S. interest rate hike next month is a “distinct possibility,” the head of the Federal Reserve Bank of Philadelphia said on Tuesday, adding that another disappointing reading on monthly inflation could cause the U.S. central bank to hold back.

Shell to sell $4.1-billion stake in Canadian Natural (TheGlobeAndMail) Royal Dutch Shell Plc has decided to offload a roughly $4.1-billion stake in Canadian Natural Resources Ltd (CNRL) that it acquired as part of a deal to retreat from Canada’s oil sands earlier this year, people familiar with the situation told Reuters.

BMO hikes dividend as earnings rise to $1.25 billion (FinancialPost) The Bank of Montreal had $1.25 billion of net income in its second quarter. That’s up 28 per cent from $973 million during the same period last year. Revenue was $5.74 billion, up from $5.10 billion a year ago.

Overnight markets 

Overview: US 10yr note futures are up 0.037% at 125-29, S&P 500 futures are up 0.04% at 2399, Crude oil futures are down -0.37% at $51.28, Gold futures are down -0.22% at $1252.7, DXY is down -0.04% at 97.312, CAD/USD is down -0.04% at 0.7404.

US Economic Data

7:00 AM MBA Mortgage Applications, May 19, 4.4% (prior -4.1%)
9:00 AM FHFA House Price Index, m/m, Mar, est. 0.5% (prior 0.8%)
10:00 AM Existing Home Sales, Apr, est. 5.65m (prior 5.71m)
Existing Home Sales, m/m, Apr, est. -1.1% (prior 4.4%)
2:00 PM FOMC Minutes from May 2-3 meeting

Canadian Economic Data 

10:00 AM Bank of Canada Rate Decision, May 24, est. 0.50% (prior 0.50%)



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, David Leclair-Legault

Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilières Inc.

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