Market Update
Tsys mildly lower, curve flatter, heavy volume in TY futures due to roll but off Tuesday’s pace (625k), 10Y 3.063%. Equity futures are higher – S&P +11.5, crude slightly lower 51.53. Key events today – US Q3 GDP at 8:30(0.4% exp & core PCE 1.6%), Fed chair Powell speaks at 12:00ET, the US auctions $32bln 7Y notes at 1:00ET. In Canada, GOCs are higher, outperforming tsys by 1-1.5bps, 10Y 2.33% (-1.2bps), with the CAD trading above 1.3320 a five-month low, the latest leg lower yest on news of GM closing its Oshawa plant. RRB auction at noon – $700mln reopening of the Dec 2050 issue with the RRB 2050/47 roll 0.5/0.0, and 30Y breakevens (2047/C48) ~163bps – the lowest in a year. TIPs breakevens have narrowed vs RRBs lately which seems counterintuitive, detracting somewhat from attractiveness of today’s auction, though $840mln RRB coupon is supportive.
News headlines
Mnuchin Asked About Fed Option That Could Avoid Rate Hikes (Bloomberg) Treasury Secretary Steven Mnuchin privately asked bond dealers and investors in October whether they want the Federal Reserve to tighten monetary policy by raising interest rates or through faster cuts in its securities portfolio, six people familiar with the matter said. Mnuchin’s question could be seen as suggesting a way for the central bank to accomplish its goal of preventing a strong economy from overheating without triggering the ire of President Donald Trump, who has blasted Fed Chairman Jerome Powell for raising rates. For his part, Mnuchin has refrained from commenting on monetary policy, citing the importance of the Fed’s independence.
U.K. GDP Would Suffer 10.7% Hit in Worst Case No-Deal Brexit (Bloomberg) The U.K. will suffer a major economic hit if Parliament rejects Theresa May’s Brexit deal and the country crashes out of the European Union with no new trade arrangements in place, according to official analysis. A government report on Wednesday said GDP will be as much as 10.7 percent lower over 15 years if there’s no orderly exit and the supply of workers from the bloc dries up. The U.K. will be poorer under all exit options modeled in the study.
Trump Brings a Rare Commodity to His Summit With Xi—Allies (Bloomberg) President Donald Trump is heading to a trade showdown with China’s Xi Jinping with something that a few months ago would have seemed improbable: allies. Investors and businesses around the world are hoping that when Trump sits down with his Chinese counterpart on the sidelines of the Group of 20 summit in Argentina on Saturday the two may be able to negotiate a ceasefire in their tit-for-tat tariff war. Such a truce would at least delay an escalation to the trade conflict between the world’s two largest economies, a major risk hanging over the global economy going into 2019.
Stocks Push Higher; Dollar Steadies Before Powell: Markets Wrap (Bloomberg) Stocks in Europe rose alongside U.S. futures, tracking gains in Asia as investors rekindled their risk appetite before a speech by the chair of the Federal Reserve. The dollar and Treasuries were steady. Retailers and miners were the best performers as the Stoxx Europe 600 Index erased Tuesday’s drop. Contracts on the Dow, S&P and Nasdaq were all also in the green as the 10-year Treasury yield drifted ahead of Jerome Powell’s speech. The pound jumped as U.K. Prime Minister Theresa May appeared to back down in a key Brexit battle with Parliament. European bonds nudged higher and the single currency was range bound. Brent crude handed back earlier gains to trade little changed.
Royal Bank of Canada quarterly earnings beat market forecasts (Reuters) Royal Bank of Canada (RY.TO) on Wednesday reported a forecast-beating 17 percent jump in fourth-quarter earnings, helped by growth in its retail banking and wealth management divisions. Canada’s biggest lender by market value posted earnings per share of C$2.20 in the three months to Oct. 31, ahead of a consensus analyst forecast of C$2.12, according to IBES data from Refinitiv.
Trump threatens to cut GM subsidies in retaliation for U.S. job cuts (Reuters) U.S. President Donald Trump threatened on Tuesday to eliminate subsidies for General Motors Co in retaliation for the automaker cutting U.S. jobs and plants, and the automaker also took fire from Canadian political and labor leaders for cutbacks there.
Quebec angry as Ottawa signals Via Rail is free to pick Siemens over Bombardier (BNN) Quebec Premier Francois Legault said Tuesday “it makes no sense” for the federal government to let Via Rail award a major contract without ensuring any jobs are created in Canada. Reacting to a report that the German firm Siemens AG has beaten out Bombardier Transportation for a $1-billion contract to build new Via Rail trains, Legault said Ottawa should have included a 25 per cent local content requirement – at a minimum. “I can’t get over seeing (Marc) Garneau throw in the towel,” Legault told reporters in Quebec City, referring to the federal transport minister.
Canadian crude is starting to rebound from historic lows (BNN) The Canadian energy industry may not be popping champagne just yet, but a rebound in local crude prices may offer some reasons for hope. With producers like Cenovus Energy Inc. () shipping more oil by rail and U.S. refineries starting back up after a heavy maintenance season, Canadian crude has recovered some of its historic losses. Since hitting a record low on Nov. 15, the spot price of heavy Western Canada Select has risen 35 per cent, or US$4.65 a barrel. “It’s not that our constraints have gone away, but they are pretty stable,” Joan Pinto, an energy specialist at Canadian Imperial Bank of Commerce, said in an interview.
Overnight markets
Overview: US 10yr note futures are down -0.066% at 119-06, S&P 500 futures are up 0.42% at 2694.75, Crude oil futures are down -0.14% at $51.49, Gold futures are down -0.07% at $1219, DXY is down 0% at 97.365, CAD/USD is up 0.24% at 0.7504.
| Cda Benchmarks | Yield | Tsy Benchmarks | Yield |
| 2 Year | 2.221% | 2 Year | 2.837% |
| 5 Year | 2.276% | 5 Year | 2.89% |
| 10 Year | 2.326% | 10 Year | 3.063% |
| 30 Year | 2.385% | 30 Year | 3.32% |
US Economic Data
| 7:00 AM | MBA Mortgage Applications, Nov 23rd 5.5% (-0.1% prior) |
| 8:30 AM | Advance Goods Trade Balance, Oct est -77.0b (-76.0b prior) |
| Wholesale Inventories MoM, Oct est 0.4% (0.4% prior) | |
| Retail Inventories MoM, Oct est 0.5% (0.1% prior) | |
| GDP Annualized QoQ, 3Q est 3.5% (3.5% prior) | |
| Personal Consumption, 3Q est 3.9% (4.0% prior) | |
| GDP Price Index, 3Q est 1.7% (1.7% prior) | |
| Core PCE QoQ, 3Q est 1.6% (1.6% prior) | |
| 10:00 AM | New Home Sales, Oct est 575k (553k prior) |
| New Home Sales MoM, Oct est 4.0% (-5.5% prior) | |
| Richmond Fed Manufact. Index, Nov est 15 (15 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