Market Update
US tsy yields another 2.5-4bps higher after solid US durable goods orders, US 10Y 2.47% (+3bps), heavy volume in TY futures (520k), pressured by weaker EGBs, stronger US Sep Durable Goods new highs in USDJPY, equities weaker (S&P fut -3.5). Core Euro bonds weaker led by UK gilts, 10Y gilt above 1.38% resis, 1.40% six month high following stronger UK GDP. GOCs lower in line with tsys, curve 1.5bps steeper before BOC decision and MPR at 10:00. BOC widely expected to leave rates unch, so attention will focus on updated forecasts for growth & inflation, as well as the output gap (0.5% in last update, 0.75% last fall), which at this point is close to zero based on stronger growth in the second qtr.
News headlines
U.K. Growth Surprise Clears Path for Bank of England Rate Rise (Bloomberg) The U.K. economy’s surprise acceleration has paved the way for the Bank of England to raise interest rates for the first time in a decade next week. The pound rose and investors increased bets on a tightening of monetary policy on Nov. 2 after initial data showed 0.4 percent growth last quarter, more than economists forecast and the fastest pace of the year so far. This is the last major economic report BOE officials will get on the health of the economy before their crucial meeting.
Flake’s Blistering Attack on Trump Is the Latest Crack in GOP Unity (Bloomberg) Republican Senator Jeff Flake of Arizona announced he won’t seek re-election and then delivered a blistering attack on Donald Trump on the Senate floor, the second GOP senator to publicly excoriate the president on the day the party wanted to put a proposed tax overhaul at the forefront.
Yellen Finds Unlikely Advocate at White House: Trump (Bloomberg) The incumbent Federal Reserve chair was impressive in an Oval Office interview with Trump on Thursday, several people familiar with the matter said. She made clear to the president that she wants to keep her job, set no preconditions for appointment to a second term, and offered suggestions for the vice chairman position that were welcomed by the Trump team.
Bond Market’s 2.4% Moment of Truth Elicits Warning From Gundlach (Bloomberg) The 10-year Treasury yield rose five basis points Tuesday to 2.42 percent, closing above 2.4 percent for the first time in five months. The yield had previously failed to sustain increases above that mark on several occasions since May, making it a bellwether of the potential for yields to return to their highs of the past year.
Treasuries Extend Drop With Havens; Pound Rallies: Markets Wrap (Bloomberg) U.S. Treasuries extended their declines and the dollar held at a three-month high amid continued optimism over the global growth outlook. Safe haven assets such as the yen and gold slipped, while stocks in Europe rose and S&P 500 futures slipped as the earnings season continued to unfold
Loonie Underpriced in Big Banks’ Eyes as 2017 Hike Risk Remains (Bloomberg) Wednesday’s Bank of Canada meeting is set to revive a six-month surge in the loonie that’s stalled in recent weeks, according to the country’s biggest lenders. That’s good news for speculators who remain near the most bullish on the currency since 2012.
Air Canada reports third quarter profit, boosted by one-time tax recovery (CTV) Air Canada earned $1.79 billion in its latest quarter, boosted by a one-time $793-million tax recovery. The airline (TSX:AC) says the profit amounted to $6.44 per diluted share compared with a profit of $768 million or $2.74 per diluted share in the same quarter last year. On an adjusted basis, Air Canada says it earned $950 million or $3.43 per diluted share in the quarter, up from $821 million or $2.93 per diluted share in the third quarter of 2016.
Bank of Canada widely expected to keep brakes on interest rates (CBC) With no change in interest rates expected when the Bank of Canada announces its latest decision this morning, economists and markets will be eyeing the latest update on the central bank’s outlook for the economy for hints on future hikes.
Exclusive: Canada pushed for Airbus deal as Bombardier courted China (Reuters) The Canadian government encouraged Bombardier to make a deal with Airbus SE for its CSeries planes to thwart a potential venture with Chinese investors, according to five sources familiar with the matter. It signaled its preference for Airbus after Bombardier failed to reach an agreement with Boeing Co earlier this year that would have given the U.S. company a stake in the CSeries jetliners, according to the sources. The Canadian government’s role has not been previously reported.
Canada to unveil smaller budget deficit, hopes will shift focus (Reuters) Canada’s Liberal government unveiled a smaller-than-forecast budget deficit on Tuesday as it pressed forward with more stimulus spending on families, but did not project the budget would return to balance in the next five years.
Overnight markets
Overview: US 10yr note futures are down -0.301% at 124-12, S&P 500 futures are down -0.13% at 2564, Crude oil futures are down -0.27% at $52.33, Gold futures are down -0.3% at $1274.5, DXY is down -0.01% at 93.764, CAD/USD is up 0.17% at 0.7876.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.504% | 2 Year | 1.605% |
| 5 Year | 1.75% | 5 Year | 2.068% |
| 10 Year | 2.093% | 10 Year | 2.454% |
| 30 Year | 2.413% | 30 Year | 2.965% |
US Economic Data
| 7:00 AM | MBA Mortgage Applications, Oct 20th -4.6% (3.6% prior) |
| 8:30 AM | Durable Goods Orders, Sep 2.2% est 1.0% (2.0% prior) |
| Durable Ex Transportation, Sep 0.7% est 0.5% (0.5% prior) | |
| Cap Goods Orders Nondef Ex Air, Sep 1.3% est 0.3% (1.1% prior) | |
| Cap Goods Ship Nondef Ex Air, Sep 0.7% est 0.1% (1.1%) | |
| 9:00 AM | FHFA House Price Index MoM, Aug est 0.4% (0.2% prior) |
| 10:00 AM | New Home Sales, Sep est 554k (prior 560k) |
| New Home Sales MoM, Sep est -1.1% (-3.4% prior) |
Canadian Economic Data
| 10:00 AM | Bank of Canada Rate Decision, Oct 25th est 1.00% (1.00% prior) |
| Bank of Canada Releases October Monetary Policy Report |
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