Market Update US tsys trading higher before Q3 GDP (3.3% exp), as equities weaken significantly, US 10Y 3.085% (-3.2bps), heavy volume in TY futures (~750k). US equity futures lower with S&P -32, Nasdaq -150, Euro stocks -1.5% hitting new 2Y lows). German bunds have rallied with risk off tone, 10Y bund 5bps lower @0.35%, odds of an ECB rate hike before 2020 virtually nil after Draghi pointed to downside risks for Euro economy in press conf yest. Crude continuing to slide as well, WTI down for three weeks in longest slump since August, Stoxx 600 Oil & Gas index -2.7% to lowest since April despite positive earnings from Total & Eni. Total Q3 net $3.96bln vs $3.84bln est, but warned on spending, shares -3.1%. In Canada, GOCs are higher, outperforming tsys in 10s by 0.5bps, 10Y 2.41% at one month lows, GOC curve 6bps flatter over the week with short end anchored by hawkish BOC.
News headlines
What Economists Are Saying Ahead of Third-Quarter U.S. GDP Data (Bloomberg) Friday’s U.S. gross domestic product report, the last before the midterm elections that will determine control of Congress, will show just how much support the tight labor market and tax cuts are offering the economy amid rising uncertainty about trade. While President Donald Trump said third-quarter growth would be “outstanding,” economists project the expansion was a bit slower than the prior period, though still strong by recent standards.
Surging Spreads Prompt More Italy Questions for ECB’s Draghi (Bloomberg) European Central Bank President Mario Draghi is facing a lot of questions on his home country these days. Concern about Italy’s expansionary fiscal plans — and at times its future in the euro area — have pushed yields to a multi-year high. With rising borrowing costs posing a risk for the transmission of monetary policy, the matter has become a key focus of ECB press conferences. Thursday’s briefing saw 32 references to Italy, beating the 24 mentions of inflation, which is core to the institution’s mandate.
Russia Pauses Rate Hikes But Warns Further Tightening Possible (Bloomberg) Russia’s central bank kept borrowing costs unchanged, pausing after a surprise hike last month but warning that inflation risks may prompt more tightening. “Pro-inflationary risks remain elevated, especially over a short-term horizon,” it said in a statement on Friday. “The Bank of Russia will consider the necessity of further increases in the key rate, taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets.”
Equities Rout Resumes; Bonds Gain Before U.S. Data: Markets Wrap (Bloomberg) Stocks in Europe renewed their sell-off along with exchange-traded funds that track U.S. benchmarks as disappointing reports from technology bellwethers marred sentiment at the end of a tumultuous week. Treasuries gained with the dollar before growth and consumer-price data in the world’s biggest economy. Downbeat results from Amazon.com Inc. and Alphabet Inc. weighed on the outlook after the S&P 500 index climbed for the first time in seven days Thursday. An ETF tracking the Nasdaq 100 Index was down 3.4 percent from its Thursday close, pointing to an ugly open for U.S. stocks. An ETF tied to the S&P 500 was down 1.7 percent.
Canadian government to release budget update on November 21 (Reuters) Canadian Prime Minister Justin Trudeau’s government will release a regular fall budget update on Nov. 21, the finance minister said on Thursday, less than a year before the next national election. Bill Morneau made the announcement on Twitter without giving any details.
Sears directors tap Evercore to examine former CEO Lampert’s deals (Reuters) Two Sears Holdings Corp SHLDQ.PK board directors have hired investment bank Evercore Inc (EVR.N) to scrutinize deals that were led by former Sears Chief Executive Eddie Lampert with the U.S. retailer before it filed for bankruptcy protection, people familiar with the matter said on Friday. The deals, including separations of Sears’ businesses and real estate, may come under examination in bankruptcy proceedings, with creditors claiming the transactions stripped the retailer of valuable assets. Billionaire Lampert is the largest shareholder and creditor of Sears through his hedge fund, ESL Investments Inc.
Here are the reasons China’s equity rout is getting even worse (BNN) Chinese equities have already lost US$3 trillion in market value since January, and hopes for better days ahead are fading. Anyone counting on a breather in this year’s final stretch got slapped with another 8.4 per cent drop for the Shanghai Composite Index so far in October, putting it on course for its worst month since early 2016. That sets the gauge up for its third-worst annual performance ever, behind a 65 per cent meltdown at the height of the global financial crisis in 2008 and a 22 per cent plunge in 1994. China has become the world’s worst place to own stocks in 2018.
Canadian housing still ‘highly vulnerable,’ but prices easing: CMHC (BNN) Real estate prices may be showing signs of easing but Canada’s housing market remains « highly vulnerable, » according to the Canadian Mortgage and Housing Corporation. The federal agency says that stricter mortgage rules, rising interest rates and smaller growth in inflation-adjusted disposable income has led to less demand for housing and a decline in prices. Despite these factors, markets in Toronto, Vancouver, Victoria and Hamilton are still considered to have a « high degree of overall vulnerability » even though house prices are getting more in line with housing market fundamentals such as income, mortgage rates and population.
Overnight markets
Overview: US 10yr note futures are up 0.33% at 118-30, S&P 500 futures are down -1.15% at 2657.25, Crude oil futures are down -1.22% at $66.51, Gold futures are up 0.41% at $1237.4, DXY is up 0.17% at 96.845, CAD/USD is up 0.55% at 0.7609.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.28% | 2 Year | 2.808% |
| 5 Year | 2.361% | 5 Year | 2.922% |
| 10 Year | 2.415% | 10 Year | 3.085% |
| 30 Year | 2.444% | 30 Year | 3.315% |
US Economic Data
| 8:30 AM | GDP Annualized QoQ, 3Q est 3.3% (4.2% prior) |
| Personal Consumption, 3Q est 3.3% (3.8% prior) | |
| GDP Price Index, 3Q est 2.1% (3.0% prior) | |
| Core PCE QoQ, 3Q est 1.8% (2.1% prior) | |
| 10:00 AM | U. of Mich Sentiment, Oct est 99.0 (99.0 prior) |
| U. of Mich. Current Condition, Oct (114.4 prior) | |
| U. of Mich. Expectations, Oct (89.1 prior) | |
| U. of Mich. 1Yr Inflation, Oct (2.8% prior) | |
| U. of Mich. 5-10 Yr Inflation, Oct (2.3% prior) |
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
Institutional Bond and Equity Desk
CTI Capital Valeurs Mobilieres Inc.
Tel : (514)-861-0240
Fax: (514)-861-3230