Market Update Tsys trading sharply lower, 10Y 2.875% (+9bps), ‘risk on’ with Italy/bund 10Y 34bps tighter, successful Italy 10Y auction. USD index -0.54%m, gold lower, crude higher (+0.45% 67.07), S&P futures +13pts. US Eco calendar includes ADP & Q1 GDP (2.3% exp unch from prelim est). Core EGBs lower, unwind of yest safe haven rally, 10Y bund ~10bps higher @ 0.35% – still ~28bps off the highs of May. GOCs lower, outperforming 1-3bps vs tsys in the pullback, the 2s10s curve 2.5bps steeper before this mornings BOC decision – no chg expected and there is no statement. Provis spds opening 0.5bps tighter, supply expected as mkts are calmer. New polls showing NDP rising popularity in Ontario – expanding their lead over PCs in latest Macleans poll.  

News headlines

Crisis-Weary Central Banks Brace for Turmoil as Italy Slips (Bloomberg) Just when central bankers thought they were about to get out of the business of emergency economic stimulus, jittery financial markets are threatening to pull some of them back in. For the European Central Bank, the latest threat requiring vigilance is political turmoil in Italy that’s reviving memories of the debt crisis that threatened to fracture the euro area. The Bank of England’s path is complicated by Brexit and, across emerging markets, central banks are trying to push back against the strong dollar.

Trudeau Plays Longer Game Against ‘Ruthless’ U.S. Bottom Line (Bloomberg) Justin Trudeau wants to build a Canadian economy that will thrive a decade or more from now — if that means losing a short-term edge to Donald Trump, so be it. The Canadian prime minister outlined his economic vision Tuesday, championing investments in education and healthcare, targeted immigration and responsible borrowing as ways to quell populist unrest and build a thriving society. Noticeably absent was any talk of tax cuts mirroring those in the U.S., which he called a more “ruthless” economy propped up by unsustainable deficits.

Treasuries Slide as Italy Panic Fades; Euro Jumps: Markets Wrap (Bloomberg) Global markets regained some composure on Wednesday as panic over the Italian political crisis subsided and encouraging economic data helped steady nerves in Europe. Treasuries fell back with the dollar as the haven bid ebbed, and the euro jumped. Italian bonds rebounded, with the 10-year yield falling as much as 32 basis points as the country successfully passed a key test of appetite for its debt and rifts emerged between populist leaders. German jobs data topped estimates and there were CPI beats in several states in the nation as well as in Spain, all of which added momentum to a bounce in the euro.

Teamsters members go on strike at Canadian Pacific (Reuters) More than 3,000 locomotive engineers and conductors at Canadian Pacific Railway (CP) have gone on strike on Tuesday night, trade union Teamsters Canada said in a statement. The negotiations between the union and the company are currently ongoing and Teamsters is working with federal mediators to reach a negotiated agreement, according to the statement. The workers, whose collective agreement expired late last year, are asking for more predictable schedules to combat crew fatigue, among other demands.

How Kinder Morgan won a billion-dollar bailout on Canada pipeline (Reuters) U.S. energy firm Kinder Morgan’s C$4.5 billion sale of an oil pipeline to Canada’s government marked an extraordinary escape from months of fraught negotiations among warring camps of Canadian officials. But even before the bailout, the company had little to lose – despite the C$1.1 billion it has spent so far on a plan to add a second pipeline from Alberta’s oil sands to British Columbia’s coast, according to a Reuters review of the project’s bank financing and oil-shipping contracts with producers reserving space on the proposed line.

TSX set for higher open as oil prices rise (Reuters) Stock futures pointed to a higher opening for Canada’s main stock index on Wednesday as Brent crude prices rose towards $76 a barrel, supported by tight supplies. June futures on the S&P TSX index were up 0.33 percent at 7:15 a.m. ET. Investors will watch out for the Bank of Canada’s interest rate decision scheduled at 10:00 a.m. ET. The central bank is expected to hold rates steady at 1.25 percent, but firmer price and wage inflation will prompt two increases in the second half of 2018, according to a Reuters poll.

Risks ‘loom large’ in global economy that’s seeing best growth in years (BNN) The OECD presented another upbeat set of projections in its latest assessment of the global economy, but was very clear that there are a growing number of threats. “Risks loom large” was the headline of its latest outlook, published in Paris on Wednesday, and the global backdrop this week provided plenty of reason to heed their warnings. Political turmoil in Italy has revived memories of the euro crisis, sending yields on the nation’s debt surging and European stocks tumbling.

Overnight markets

Overview: US 10yr note futures are down -0.67% at 120-14, S&P 500 futures are up 0.48% at 2705.25, Crude oil futures are up 0.64% at $67.16, Gold futures are down -0.07% at $1303.2, DXY is down -0.61% at 94.246, CAD/USD is down -0.38% at 0.7709. 

Cda Benchmarks Yield Tsy Benchmarks Yield
2 Year 1.891% 2 Year 2.391%
5 Year 2.098% 5 Year 2.681%
10 Year 2.259% 10 Year 2.87%
30 Year 2.307% 30 Year 3.054%

US Economic Data

7:00 AM MBA Mortgage Applications, May 25th -2.9% (-2.6% prior)
8:15 AM ADP Employment Change, May 178k est 190k (204k prior)
8:30 AM GDP Annualized QoQ, 1Q est 2.3% (2.3% prior)
  Personal Consumption, 1Q est 1.2% (1.1% prior)
  GDP Price Index, 1Q est 2.0% (2.0% prior)
  Core PCE QoQ, 1Q est 2.5% (2.5% prior)
  Advance Goods Trade Balance, Apr est -71.0b (-68.0b prior)
  Retail Inventories MoM, Apr (-0.4% prior)
  Wholesale Inventories MoM, Apr est 0.5% (0.3% prior)
14:00 AM U.S. Federal Reserve Releases Beige Book

Canadian Economic Data

8:30 AM Current Account Balance, 1Q est -18.20b (-16.35b prior)
  Industrial Product Price MoM, Apr est 0.6% (0.8% prior)
  Raw Materials Price Index MoM, Apr (2.1% prior)
10:00 AM Bank of Canada Rate Decision, May 30th est 1.25% (1.25% 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
Fax: (514)-861-3230