25/09/2018

Market Update

US tsys weaker, off the lows, with the 10Y 3.10% (+1bp), 10s&30s near the four-year high level reached in May (3.11 & 3.25), on heavier than avg volume in TY futures (435k). ‘Risk on’ tone overnight with Euro equities higher led by energy and info tech, crude higher rising above $82. US eco data Case-Shiller home prices, Consumer Confidence. Second leg of US tsy supply with $38bln 5Y auction at noon, FOMC tomorrow.  GOCs lower, underperforming tsys out the curve, 10Y 2.46% closing in on May’s 2.52% high. Provis trading tighter to start in 10s & longs –  Onts 28s @ 67.5, Ont 49s @ 81, this despite Ontario expected to be back in the mkt this morn (10Y or 30Y?). In corps, yest RBC issued the first ‘bail-in’ bond 5Y  @ 95 OTC – the tighter side of guidance (15 over RY 2.33 12/23, vs 15-20 guid).

News headlines

Fed to Spurn Rate Pause and Stick With Quarterly Hikes: Survey (Bloomberg) The Federal Reserve will raise interest rates this week and continue its quarterly drumbeat of 25-basis-point increases straight through to June 2019, according to economists surveyed by Bloomberg. That’s a steadier pace for hikes over the coming months than Fed watchers anticipated in June, when they predicted the Federal Open Market Committee would skip a move at its December meeting. Such a pause won’t come until next September, economists now say.

Barrick’s Randgold Acquisition May Spur More Gold Mining Deals (Bloomberg) Gold miners earned the ire of investors including billionaire hedge-fund manager John Paulson for entering into bad deals that destroyed shareholder value in the past. Shareholders of the two companies announcing a merger Monday signaled they think this time may be different. Barrick Gold Corp. Executive Chairman John Thornton said his company isn’t paying a premium under its agreement to buy Randgold Resources Ltd. The decision came after the company has been criticized for its “undisciplined growth and poor returns” in the past.

Trump Says He’ll Discuss ‘What’s Going On’ With Rosenstein (Bloomberg) President Donald Trump said he’s looking forward to meeting with Deputy Attorney General Rod Rosenstein on Thursday to discuss his future, after a person familiar with the matter said Rosenstein told Chief of Staff John Kelly that he was resigning. “We’ll be determining what’s going on,” Trump told reporters at the United Nations on Monday. “We want to have transparency, we want to have openness and I’m looking forward to meeting with Rod at that time.”

Stocks Climb, Bonds Fall as Risk Appetite Rebounds: Markets Wrap (Bloomberg) Stocks across Europe resumed their upward march and U.S. equity futures pointed to a gain at the open as investors shrugged off worries over trade and politics to rediscover their appetite for risk. Benchmark Treasury yields climbed past 3.1 percent, and oil traded at a four-year high. Energy shares powered the Stoxx Europe 600 Index higher after a sluggish start. Contracts for the S&P 500, Dow Jones and Nasdaq all climbed, though the tech index lagged after Instagram’s founders said they were leaving Facebook Inc. Japanese equities rose to the highest since February as traders returned from a holiday, although Chinese shares headed in the opposite direction after a long weekend. Hong Kong and South Korea were shut. The dollar drifted and the euro rose. Core European bonds slipped but Italian debt rallied as the country crept closer to a budget.

Corporate Canada takes side bet with FX hedges as NAFTA risk intensifies (Reuters) As the month-end deadline for North American trade talks nears, Canadian executives who hedge foreign exchange risk have been changing their strategies so their companies can profit from any possible swings in the Canadian dollar. Companies ranging from manufacturing, agriculture to retail are choosing to hedge their foreign exchange risk with options, which have become cheaper than normal to buy, rather than enter into contracts that lock in a future currency rate, currency dealers said.

Canada unveils plan to bolster WTO in face of U.S. protectionism (BNN) The Canadian government released a new blueprint Tuesday to reinforce the World Trade Organization and buffer it from President Donald Trump’s ‘America First’ attacks on the Geneva-based trade body. The proposal, called “Strengthening and Modernizing the WTO,” seeks to forge an alliance of like-minded countries to “restore confidence in the multilateral trading system and discourage protectionist measures and countermeasures,” according to a copy of the eight-page document obtained by Bloomberg. The effort is one of several initiatives aimed at shoring up the WTO as it confronts an array of crises that could ultimately sideline the organization’s role as the arbiter of global trade. Trump has threatened to withdraw from the WTO, repeatedly attacked the organization as being biased against U.S. interests and is slowly strangling the dispute settlement system, which mediates trade disputes that affect some of the world’s largest companies.

TransCanada plans to start Keystone XL construction in 2019 (BNN) The developer of the Keystone XL oil pipeline plans to start construction next year, after a U.S. State Department review ordered by a federal judge concluded that major environmental damage from a leak is unlikely and could quickly be mitigated, a company spokesman said Monday. TransCanada spokesman Matthew John said the company remains committed to moving ahead with the project following years of reviews from federal and state regulators. The company has already started preparing pipe yards, transporting pipe and mowing parts of the project’s right-of-way in Montana and South Dakota, but TransCanada said in court documents it doesn’t plan start construction in Nebraska in the first half of 2019.

Overnight markets

Overview: US 10yr note futures are down -0.132% at 118-15, S&P 500 futures are up 0.21% at 2931.5, Crude oil futures are up 0.39% at $72.36, Gold futures are up 0.13% at $1206, DXY is down -0.11% at 94.084, CAD/USD is up 0.05% at 0.7715.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.207%	2 Year	2.835%
5 Year	2.355%	5 Year	2.978%
10 Year	2.462%	10 Year	3.096%
30 Year	2.474%	30 Year	3.233%

US Economic Data

9:00 AM	FHFA House Price Index MoM, Jul est 0.3% (0.2% prior)
	S&P CoreLogic CS 20-City MoM SA, Jul est 0.1% (0.11% prior)
	S&P CoreLogic CS 20-City YoY NSA, Jul est 6.20% (6.31% prior)
	S&P CoreLogic CS 20-City NSA Index, Jul (213.07 prior)
	S&P CoreLogic CS US HPI NSA Index, Jul (204.48 prior)
	S&P CoreLogic CS US HPI NSA, Jul (6.24% prior)
10:00 AM	Richmond Fed Manufact. Index, Sep est 20 (24 prior)
	Conf. Board Consumer Confidence, Sep est 132.1 (133.4 prior)
	Conf. Board Present Situation, Sep (172.2 prior)
	Conf. Board Expectations, Sep (107.6 prior)

Canadian Economic Data

There is no Canadian economic data for today