Market Update With the US mkt closed for holiday, risk off tone from Italian upheaval reflected in bid tone in German bunds, 10Y bund at a six-month low 0.35% (-4.5bps), 28bps lower in just the last ten days. Two year BTP/bund spd 48bps wider, Italy 2Y which yielded -0.32% two weeks ago, now 0.90%. Former Italian IMF official known for fiscal discipline, has been asked to form a new govt after the coalition govt collapsed. Crude oil lower for a fifth day, WTI fell below 66.00, three week low, on prospect of OPEC supply increase. GOCs sharply higher, 10Y 2.315%, ~20bps off the highs of last week 2.52%.
News headlines
Poloz’s Holding Pattern on Canadian Rates Can’t Last Much Longer (Bloomberg) It’s no longer an issue of if, but when the Bank of Canada raises interest rates. Governor Stephen Poloz heads into a rate decision Wednesday where he’s expected to once again refrain from lifting borrowing costs, even as the economy shows signs of strength and is running up against capacity constraints. It’s a cautious stance driven by a wait-and-see approach to a long list of uncertainties — everything from Nafta to the housing market — rather than any concerns about fundamental economic momentum.
ECB Tests Flavor of Inflation as Big Policy Discussion Looms (Bloomberg) This isn’t the inflation the European Central Bank is looking for — but it is inflation. Figures this week are forecast to show euro-area consumer-price growth could have reached its fastest since early 2017 on the back of more expensive oil and a rebound in travel costs. The cost of crude and a weaker euro are also set to bolster a more significant set of numbers out in June — new ECB projections that will help policy makers determine whether the time has come to scale back asset purchases.
Italian Banks Lead Stock Declines After Government Plan Unravels (Bloomberg) Italian banks led European financial stocks lower as the growing likelihood of new elections shook investor confidence. Banca Monte dei Paschi di Siena SpA, the habitually-volatile state-rescued bank, led declines with a drop of as much as 7.8 percent. The eight worst performers on the Bloomberg Europe Banks Index were all Italian lenders as of 12:07 p.m., with UniCredit SpA losing almost 4 percent and Intesa Sanpaolo SpA down about 3 percent.
U.S. Stock Futures Rise on Korea Hopes; Oil Slumps: Markets Wrap (Bloomberg) U.S. equity futures followed Asian shares higher on signals an America-North Korea summit is back on track, but risk appetite waned in Europe as Italy’s political outlook darkened. The region’s stocks and common currency both surrendered gains. S&P 500 futures advanced, as did South Korean stocks, after President Donald Trump appeared to confirm that his June meeting with Kim Jong Un was back on. National gauges in Europe turned lower, led by Italy’s benchmark, as populist leaders pulled the plug on their attempt to form a government and the country lurched toward fresh elections. The nation’s bonds tumbled. Oil losses deepened after Saudi Arabia and Russia said they are discussing reviving output.
Canadian Pacific Railway union serves strike notice (Reuters) Union members representing Canadian Pacific Railway Ltd’s (CP) (CP.TO) conductors and locomotive engineers have served a notice to go on strike as early as May 29, according to a union statement released on Saturday. The strike notice comes a day after the union rejected the company’s latest contract offer. “After workers at CP voted to reject the last contract offers, the company is still refusing to negotiate seriously,” the statement said. CP is the country’s second-largest railroad.
Futures little changed amid a dip in oil prices (Reuters) Stock futures pointed to a flat opening for Canada’s main stock index on Monday even as oil prices extended losses as Saudi Arabia and Russia said they may raise output. June futures on the S&P TSX index were down 0.03 percent at 7:15 a.m. ET. The Toronto Stock Exchange’s S&P/TSX fell 37.95 points, or 0.24 percent, to 16,075.67 on Friday, its fourth straight decline, as a drop in oil prices weighed on the energy sector.
Oil slips below US$66 as Saudis, Russia hint at supply hike (BNN) Oil in New York headed for its longest run of losses in almost four months as Saudi Arabia and Russia said they are discussing raising output to ease consumer anxiety after prices jumped to levels last seen in 2014. West Texas Intermediate dropped as much as 3.1 per cent, while Brent crude futures traded above US$80 a barrel last week slumped near US$75 in London on Monday. Saudi Arabia and Russia signaled they’ll restore some of the output they cut as part of a deal between OPEC and its allies that took effect in January last year. Potential opposition from several producers could complicate the group’s effort to reach a consensus when it meets next month in Vienna.
Trudeau government says 2017 deficit is in line with projections (BNN) Prime Minister Justin Trudeau’s government released interim results for the 2017 fiscal year that it says shows are “broadly” in line with its deficit projections. The shortfall for the fiscal year ended March 31 came in at $16.2 billion, the Canadian finance department said Friday in Ottawa. Department officials indicated the final numbers, to be released later this year, would be closer to the $19.4 billion deficit projection forecast by the government in its February budget.
Overnight markets
Overview: US 10yr note futures are up 0.261% at 120-06, S&P 500 futures are up 0.17% at 2723, Crude oil futures are down -1.5% at $66.86, Gold futures are down -0.31% at $1304.9, DXY is up 0.07% at 94.318, CAD/USD is up 0.06% at 0.7702.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 1.952% | 2 Year | 2.476% |
| 5 Year | 2.18% | 5 Year | 2.765% |
| 10 Year | 2.323% | 10 Year | 2.931% |
| 30 Year | 2.363% | 30 Year | 3.092% |
US Economic Data
There is no US economic data for today.
Canadian Economic Data
| 10:00 AM | Bloomberg Nanos Confidence, May 25th (58.0 prior) |
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
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