Market Update Tsys weakening after the text of Fed chair Powell testimony released – says gradual rate rises are needed, outlook remains strong, curve steeper, 10Y 2.88% 9+1.7bps). Focus now on Powell testimony at 10:00, Durable Goods weaker than exp, -3.7% vs -2.0% exp. Core EGBs lower led by 10Y gilts, which reversed earlier gains as bunds slid despite weaker German inflation. GOCs lagging the decline in tsys post Powell, with the 10Y 2.255% – the 10Y reached a one month low 2.21% yesterday mid morn before reversing higher on the strong rally in equities pressured yields higher to close unch. Busy primary market yest – $1.75bln in supply including $500mln GWL 10Y @ 107, $500mln NIssan Cda 3Y @ 70, 2 tranche offering from Telus – $600mln new 10Y @ 148 and $150mln 2048s (reopening) @ 220. – the 10Y closed 3bps narrower in secondary trade.
News headlines
Powell Faces Policy ‘Combativeness’ in Riskier Post-Yellen World (Bloomberg) Federal Reserve Chairman Jerome Powell’s embrace of his predecessor’s gradual approach to tightening monetary policy is about to be tested. Since Powell accepted President Donald Trump’s nomination almost four months ago, the near-term outlook has changed significantly.
Stocks Fall With Bonds; Dollar Steady Before Powell: Market Wrap (Bloomberg) European stocks and bonds slipped as investors await the first public comments from Federal Reserve Chairman Jerome Powell on Tuesday. Treasuries steadied and the dollar was little changed. Most industry groups in the Euro Stoxx 600 Index declined, led by real estate and telecoms companies. S&P 500 Index futures signaled the first down day in four for the underlying gauge. Asian equities edged higher earlier, with Japanese stocks climbing to the highest in more than three weeks. The 10-year Treasury yield steadied after falling to a two-week low, while German bunds and U.K. gilts led a retreat in European bonds.
Dalio Says Central Banks Face Challenge After ‘Goldilocks’ Phase (Bloomberg) Central banks face a challenge getting things right a year or two down the road as they struggle to balance growth and inflation, said Ray Dalio, the billionaire founder of the world’s biggest hedge fund. The U.S. is further ahead than Europe in the economic cycle, meaning it may cut monetary stimulus and raise interest rates sooner, Dalio, whose Bridgewater Associates manages about $160 billion, said during an interview in Beijing with Bloomberg Television.
Why Trudeau Will Have a Hard Time Financing His Election Agenda (Bloomberg) Prime Minister Justin Trudeau’s low-key budget Tuesday will mark a major inflection point for Canada as the federal government’s interest burden rises for the first time in two decades. After hitting what’s likely an all-time low last year, the cost of covering public debt as a share of gross domestic product will probably tick up in 2018 — something that hasn’t happened since 1995. Governments relied heavily over the past 15 years on falling public debt charges to finance budget initiatives, meaning the end of the trend will leave Trudeau with fewer options as he eyes an election next year.
Bank of Montreal earnings beat market expectations (Reuters) Bank of Montreal reported first-quarter earnings which were ahead of market expectations, reflecting strong sales growth in Canada and the United States. BMO reported earnings per share, excluding one-off items of C$2.12 per share. Analysts had on average forecast earnings of C$2.06 per share, Thomson Reuters I/B/E/S data showed.
TSX futures dip ahead of budget, Powell testimony (Reuters) Canadian stock futures edged lower on Tuesday ahead of the government unveiling its federal budget and U.S. Federal Reserve Chairman Jerome Powell’s first congressional testimony. Canadian Finance Minister Bill Morneau is expected to unveil a restrained budget, with just enough spending to assuage middle class voters under pressure from rising rates – while keeping his powder dry amid uncertainty over NAFTA.
Scotiabank tops first-quarter profit estimates, raises dividend (BNN) Bank of Nova Scotia beat fiscal first-quarter profit estimates on the back of double-digit gains in its Canadian and international retail banking operations. Net income in the three months ending Jan. 31 was $2.34 billion, compared with $2.01 billion a year earlier. After stripping out a $150-million gain tied to the “remeasurement of an employee benefit liability,” the bank’s adjusted profit per share was $1.74. Analysts, on average, were expecting $1.68. Scotia also announced it will raise its quarterly dividend three cents to 82 cents per share.
Overnight markets
Overview: US 10yr note futures are down -0.065% at 120-24, S&P 500 futures are down -0.08% at 2782.25, Crude oil futures are down -0.42% at $63.64, Gold futures are down -0.26% at $1329.4, DXY is up 0.15% at 89.988, CAD/USD is up 0.27% at 0.7862.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.796% | 2 Year | 2.218% |
| 5 Year | 2.059% | 5 Year | 2.613% |
| 10 Year | 2.257% | 10 Year | 2.87% |
| 30 Year | 2.412% | 30 Year | 3.163% |
US Economic Data
| 8:30 AM | Advance Goods Trade Balance, Jan -74.4b est -72.3b (-71.6b prior) |
| Wholesale Inventories MoM, Jan 0.7% est 0.4% (0.4% prior) | |
| Retail Inventories MoM, Jan 0.8% (0.2% prior) | |
| Durable Goods Orders, Jan -3.7% est -2.0% (2.8% prior) | |
| Durable Goods Ex Transportation, Jan -0.3% est 0.4% (0.7% prior) | |
| Cap Goods Orders Nondef Ex Air, Jan -0.2% est 0.5% (-0.6% prior) | |
| Cap Goods Ship Nondef Ex Air, Jan 0.1% est 0.3% (0.4% prior) | |
| 9:00 AM | House Price Purchase Index QoQ, 4Q (1.4% prior) |
| FHFA House Price Index MoM, Dec est 0.4% (0.4% prior) | |
| S&P CoreLogic CS 20-City NSA Index, Dec (204.21 prior) | |
| S&P CoreLogic CS 20-City YoY NSA, Dec est 6.35% (6.41% prior) | |
| 10:00 AM | Richmond Fed Manufact. Index, Feb est 15 (14 prior) |
| Conf. Board Consumer Confidence, Feb est 126.5 (125.4 prior) | |
| Conf. Board Present Situation, Feb (155.3 prior) | |
| Conf. Board Expectations, Feb (105.5 prior) |
Canadian Economic Data
| 16:00 PM | Finance Minister Morneau Delivers Canada’s Federal Budget |
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