26/09/2018

Market Update

US tsys higher, yields 0.5-1.5bps lower, 10Y below 3.10% (3.08 -1.5bps), curve flatter, moderate volume in TY futures before FOMC decision this afternoon. Core EGBs higher led by gilts rallying on Brexit uncertainty, JPM recommendation to buy 10Y gilts, 10Y gilt 1.605% (-2.4bps). US equity futures higher taking their cue from rally in Asian stocks after China announced it would cut import tariffs on Nov 1st FOMC expected to raise rates 25bps to 2.0-2.25% (77% odds of additional hike in Dec based on FF futures), focus on the ‘dot plot’ and any revision to the 2019 year end forecast. GOCs higher in line with tsys, 10Y 2.45%, from yesterday’s 2.47% intraday high, 10s30s trading close to flat , strong bid in longs yest afternoon.  Provis unch from yest close, Ontarios managed to tighten 1bp after a succesful 10Y reopening yest aft

News headlines

Lighthizer Says U.S. Won’t Wait for Canada on New Nafta Pact (Bloomberg) The U.S. is moving forward on its bilateral trade deal with Mexico even if Canada is left out because negotiators can’t resolve their sharp differences over dairy and a dispute resolution system, U.S. Trade Representative Robert Lighthizer said. The Trump administration soon plans to present to Congress a text of the U.S.-Mexico trade agreement that was announced last month to revise portions of the North American Free Trade Agreement, Lighthizer said at an event in New York on Tuesday. The timeline is important because current Mexican President Enrique Pena Nieto wants to sign the deal before he’s succeeded by Andres Manuel Lopez Obrador in December, Lighthizer said.

Nafta Blowup Could Sink the Loonie by 10 Percent, JPMorgan Says (Bloomberg) Should the U.S. follow through on threats to withdraw from the North American Free Trade Agreement, the Canadian dollar would absorb much of the blow. That’s the view of JPMorgan Chase & Co., who forecast that the loonie could crumble nearly 10 percent against the dollar in the worst case “NoFTA” scenario. A U.S. withdrawal would likely entail 25 percent tariffs on autos and dairy, disrupting supply chains and forcing the Bank of Canada to slash interest rates, according to analysts including Daniel Hui.

China to Cut Tariffs on Imports Including Machinery, Textiles (Bloomberg) China will cut import tariffs on goods including machinery, paper, textiles and construction materials from Nov. 1, in a move that would lower costs for consumers and companies as a trade war with the U.S. deepens. The decision will lower tariffs for 1,585 products, cutting the tax burden on consumers and companies by about 60 billion yuan ($8.7 billion), state radio reported, citing a meeting of the State Council. This will lower the average most-favored nation tariff rate to 7.5 percent from 9.8 percent.

U.S. Stock Futures Climb Before Fed; Oil Slips: Markets Wrap (Bloomberg) U.S. equity futures advanced alongside Asian stocks while European equities held steady as markets largely entered a holding pattern before the Federal Reserve’s rate decision. The dollar edged higher and Treasuries advanced. Contracts on the S&P 500, Nasdaq and Dow all climbed, while the Stoxx Europe 600 Index drifted. Automakers underperformed in the wake of BMW’s outlook cut and news of a CEO change at Daimler. Japan’s Topix ended just below its highest point in almost eight months, while stocks rallied in Hong Kong as traders returned from a holiday and Chinese shares rose after MSCI Inc. said it’s considering increasing the country’s weight in its global indexes.

In a U.S. manufacturing hub, no illusions about tariffs and jobs (Reuters) In a town where a 30-feet tall chair is the chief landmark, and which is synonymous with a U.S. furniture industry decimated over the years by imports from China, many greet the possibility of tariffs on Chinese goods with a shrug. No wonder. Of three once bustling Thomasville furniture plants in the city limits, one is being demolished and cleared for parkland, another may become the site of a new police station, and a third is being converted into apartments.

Facebook faces political hurdle in China, where it seeks toehold (BNN) Facebook Inc. finds itself entangled in yet another political spat — this time with China, a market the social media giant is seeking to enter. Police in Hong Kong, a semi-autonomous part of China, have asked the company to remove the official page of the pro-independence National Party, which was slapped with an unprecedented government ban this week. The prohibition pledges fines and imprisonment for those aiding the group. Hong Kong officials made their request of Facebook after the measure was announced on Monday, according to the South China Morning Post.

Teck’s Frontier oil sands project inks ‘participation agreement’ with Mikisew Cree (BNN) The company proposing the $20.6-billion Frontier Oil Sands Mine says it has achieved its target of signing deals with all of the Indigenous groups who live near the northern Alberta megaproject. Doug Brown, director of public affairs for Vancouver-based Teck Resources Ltd., says it has successfully concluded negotiations with the Mikisew Cree First Nation of Fort Chipewyan, a small community near the project site north of Fort McMurray. The news of a 14th deal being signed emerged as joint federal-provincial review hearings for the project began Tuesday in Fort McMurray.

Overnight markets

Overview: US 10yr note futures are up 0.092% at 118-18, S&P 500 futures are up 0.13% at 2925, Crude oil futures are down -0.57% at $71.87, Gold futures are down -0.25% at $1202.1, DXY is up 0.22% at 94.341, CAD/USD is up 0.05% at 0.7716.

Cda Benchmarks	Yield	Tsy Benchmarks	Yield
2 Year	2.201%	2 Year	2.835%
5 Year	2.344%	5 Year	2.978%
10 Year	2.446%	10 Year	3.083%
30 Year	2.456%	30 Year	3.214%

 

US Economic Data

7:00 AM	MBA Mortgage Applications, Sep 21st 2.9% (1.6% prior)
10:00 AM	New Home Sales, Aug est 630k (627k prior)
	New Home Sales, Aug est 0.5% (-1.7% prior)
14:00 PM	FOMC Rate Decision (Upper Bound), Sep 26th est 2.25% (2.00% prior)
	FOMC Rate Decision (Lower Bound), Sep 26th est 2.00% (1.75% prior)
	Interest Rates on Excess Reserves, Sep 27th (1.95% prior)

 

Canadian Economic Data

There is no Canadian economic data for today