Commentaires

Market Update

US tsys weaker, off the lows, with the 10Y 3.10% (+1bp), 10s&30s near the four-year high level reached in May (3.11 & 3.25), on heavier than avg volume in TY futures (435k). ‘Risk on’ tone overnight with Euro equities higher led by energy and info tech, crude higher rising above $82. US eco data Case-Shiller home prices, Consumer Confidence. Second leg of US tsy supply with $38bln 5Y auction at noon, FOMC tomorrow.  GOCs lower, underperforming tsys out the curve, 10Y 2.46% closing in on May’s 2.52% high. Provis trading tighter to start in 10s & longs –  Onts 28s @ 67.5, Ont 49s @ 81, this despite Ontario expected to be back in the mkt this morn (10Y or 30Y?). In corps, yest RBC issued the first ‘bail-in’ bond 5Y  @ 95 OTC – the tighter side of guidance (15 over RY 2.33 12/23, vs 15-20 guid).

News headlines

Fed to Spurn Rate Pause and Stick With Quarterly Hikes: Survey (Bloomberg) The Federal Reserve will raise interest rates this week and continue its quarterly drumbeat of 25-basis-point increases straight through to June 2019, according to economists surveyed by Bloomberg. That’s a steadier pace for hikes over the coming months than Fed watchers anticipated in June, when they predicted the Federal Open Market Committee would skip a move at its December meeting. Such a pause won’t come until next September, economists now say.

Barrick’s Randgold Acquisition May Spur More Gold Mining Deals (Bloomberg) Gold miners earned the ire of investors including billionaire hedge-fund manager John Paulson for entering into bad deals that destroyed shareholder value in the past. Shareholders of the two companies announcing a merger Monday signaled they think this time may be different. Barrick Gold Corp. Executive Chairman John Thornton said his company isn’t paying a premium under its agreement to buy Randgold Resources Ltd. The decision came after the company has been criticized for its “undisciplined growth and poor returns” in the past.

Trump Says He’ll Discuss ‘What’s Going On’ With Rosenstein (Bloomberg) President Donald Trump said he’s looking forward to meeting with Deputy Attorney General Rod Rosenstein on Thursday to discuss his future, after a person familiar with the matter said Rosenstein told Chief of Staff John Kelly that he was resigning. “We’ll be determining what’s going on,” Trump told reporters at the United Nations on Monday. “We want to have transparency, we want to have openness and I’m looking forward to meeting with Rod at that time.”

Stocks Climb, Bonds Fall as Risk Appetite Rebounds: Markets Wrap (Bloomberg) Stocks across Europe resumed their upward march and U.S. equity futures pointed to a gain at the open as investors shrugged off worries over trade and politics to rediscover their appetite for risk. Benchmark Treasury yields climbed past 3.1 percent, and oil traded at a four-year high. Energy shares powered the Stoxx Europe 600 Index higher after a sluggish start. Contracts for the S&P 500, Dow Jones and Nasdaq all climbed, though the tech index lagged after Instagram’s founders said they were leaving Facebook Inc. Japanese equities rose to the highest since February as traders returned from a holiday, although Chinese shares headed in the opposite direction after a long weekend. Hong Kong and South Korea were shut. The dollar drifted and the euro rose. Core European bonds slipped but Italian debt rallied as the country crept closer to a budget.

Corporate Canada takes side bet with FX hedges as NAFTA risk intensifies (Reuters) As the month-end deadline for North American trade talks nears, Canadian executives who hedge foreign exchange risk have been changing their strategies so their companies can profit from any possible swings in the Canadian dollar. Companies ranging from manufacturing, agriculture to retail are choosing to hedge their foreign exchange risk with options, which have become cheaper than normal to buy, rather than enter into contracts that lock in a future currency rate, currency dealers said.

Canada unveils plan to bolster WTO in face of U.S. protectionism (BNN) The Canadian government released a new blueprint Tuesday to reinforce the World Trade Organization and buffer it from President Donald Trump’s ‘America First’ attacks on the Geneva-based trade body. The proposal, called “Strengthening and Modernizing the WTO,” seeks to forge an alliance of like-minded countries to “restore confidence in the multilateral trading system and discourage protectionist measures and countermeasures,” according to a copy of the eight-page document obtained by Bloomberg. The effort is one of several initiatives aimed at shoring up the WTO as it confronts an array of crises that could ultimately sideline the organization’s role as the arbiter of global trade. Trump has threatened to withdraw from the WTO, repeatedly attacked the organization as being biased against U.S. interests and is slowly strangling the dispute settlement system, which mediates trade disputes that affect some of the world’s largest companies.

TransCanada plans to start Keystone XL construction in 2019 (BNN) The developer of the Keystone XL oil pipeline plans to start construction next year, after a U.S. State Department review ordered by a federal judge concluded that major environmental damage from a leak is unlikely and could quickly be mitigated, a company spokesman said Monday. TransCanada spokesman Matthew John said the company remains committed to moving ahead with the project following years of reviews from federal and state regulators. The company has already started preparing pipe yards, transporting pipe and mowing parts of the project’s right-of-way in Montana and South Dakota, but TransCanada said in court documents it doesn’t plan start construction in Nebraska in the first half of 2019.

Overnight markets

Overview: US 10yr note futures are down -0.132% at 118-15, S&P 500 futures are up 0.21% at 2931.5, Crude oil futures are up 0.39% at $72.36, Gold futures are up 0.13% at $1206, DXY is down -0.11% at 94.084, CAD/USD is up 0.05% at 0.7715.

US Economic Data

Canadian Economic Data

There is no Canadian economic data for today

Market Update US tsys paring losses after weaker Aug Retail Sales (0.1% vs 0.4%), 10Y 2.985 (+1.5bps), highest since Aug 2nd on avg overnight volume in TY futures (330k). USD index bouncing off the lows after falling to a two week low. Core Euro bonds lower, underperforming tsys. 10Y gilts 3.5bps higher after BOE Carney warned rates could rise on a ‘no-deal’ Brexit outcome. GOCs lower, 1bp wider vs tsys, 10Y above 2.35% for the first time since August 9th, 2.35% also 62% retracement of the May-June rally. CMB 5Y to be priced this morning , Dec 15 2023 in the area of 31.5bps – we have sold out of our allocation, and see decent RV based on ONT/CMB 23 ~12.5bps closer to the low end of the six month range (11-18bps).

News headlines

Talking Won’t End Trump’s Growing China Trade War Any Time Soon (Bloomberg) The Trump administration’s trade war with China is following an increasingly predictable pattern and that should cause a rethink for anybody hoping for a rapid resolution. The day after financial markets around the world cheered the apparent good news that Treasury Secretary Steven Mnuchin was inviting his Chinese counterparts to sit down for further high-level negotiations, President Donald Trump undermined that very idea.

Russia Surprises With First Rate Hike Since 2014, Boosting Ruble (Bloomberg) Russia’s central bank unexpectedly raised interest rates for the first time since 2014, following its counterparts across emerging economies as inflation risks mount with a slumping currency and threats of U.S. sanctions. Policy makers signaled more rate hikes are possible after raising their benchmark to 7.5 percent, a level last seen in March, from 7.25 percent, according to a statement on Friday. Only two of 42 economists surveyed by Bloomberg predicted an increase. The ruble flipped to gains after the decision, rallying for the best performance in emerging markets.

Pompeo Hits Iran Leader for Silence on China’s Detained Muslims (Bloomberg) U.S. Secretary of State Michael Pompeo blasted Iran’s top leader for failing to speak out over China’s reported detention of large contingents of its Muslim minority population. Iranian Supreme Leader Ayatollah Ali Khamenei “fancies himself the leader of the Islamic world, but his regime has been totally silent as China — the top buyer of #Iran’s oil — has persecuted and detained hundreds of thousands of its Muslim citizens,” Pompeo wrote on Twitter.

Stocks Rise as Busy Week Ends; Dollar Extends Drop: Markets Wrap (Bloomberg) Stocks in Europe gained along with U.S. equity-index futures as prospects for U.S.-China trade talks and action by Turkey and Russia to support their currencies fostered a positive mood. The dollar deepened its decline. Miners and carmakers led the advance in the Stoxx Europe 600 Index, following a rally in most Asian benchmarks as they extended their rebound from the worst run of losses in 16 years. As appetite for risk returns, the greenback headed for its biggest weekly loss since February, while Treasury yields nudged toward 3 percent. The pound was set for a six-week high and gilts declined after Bank of England Governor Mark Carney was said to have told lawmakers that a no-deal Brexit would see interest rates rise rather than fall. Oil was poised for a weekly gain as traders keep watch on Hurricane Florence.

Canada PM says he wants a good NAFTA deal soon, hazy on deadline (Reuters) Canadian Prime Minister Justin Trudeau said on Thursday he wanted a good NAFTA deal as soon as possible, but did not answer directly when asked if he agreed with Washington that the end of September was the final deadline for talks. Canada and the United States are struggling to settle differences over access to the Canadian dairy market and how to resolve trade disputes. The United States has already struck a side deal with Mexico, the third member of the North American Free Trade Agreement. U.S. President Donald Trump says he will ditch Canada unless it quickly makes concessions.

Tim Hortons says it has reached agreement with franchisee whose restaurants it seized (BNN) The parent company of Tim Hortons says it has reached an agreement with the head of an unsanctioned franchisee group who had his four restaurants seized after he allegedly leaked sensitive corporate news to the media. « Both parties have agreed that Mr. (David) Hughes has left the Tim Hortons business and an agreement was reached that is satisfactory to both parties, » said Restaurant Brands International Inc. spokeswoman Jane Almeida. She declined to provide financial details, citing a confidentiality agreement.

AltaGas plans Canadian IPO in shift to U.S. after WGL deal (BNN) AltaGas Ltd. () is intensifying its shift toward the U.S., following up its US$4.6 billion takeover of Washington utility WGL Holdings Inc. with a plan to spin off its Canadian assets through an initial public offering. The IPO and a debt repayment from the new company would deliver $1 billion in cash proceeds to AltaGas, which plans to use the money to repay a loan it took on to fund the WGL acquisition, according to a statement Thursday. The transaction would leave AltaGas focused on natural gas and U.S. utilities, while AltaGas Canada Inc. would own Canadian gas distribution and wind power assets. 

Overnight markets

Overview: US 10yr note futures are down -0.144% at 119-08, S&P 500 futures are up 0.16% at 2915, Crude oil futures are up 0.32% at $68.81, Gold futures are up 0.14% at $1209.9, DXY is up 0.04% at 94.557, CAD/USD is up 0.08% at 0.7687.

US Economic Data

Canadian Economic Data

There is no Canadian economic data for today.

Market Update US tsys trading higher after CPI rose 0.2%, core 0.1% (0.3%, 0.2% exp). ECB left rates unch as exp, repeating the pledge to leave rates unch “at least through the summer of 2019”.  Draghi confident that policy stance is appropriate given the ‘uncertainty around the inflation outlook is receding’ The BOE also left rates unchanged yet raised its estimate for Q3 growth.  European equities maintaining gains after ECB, EUR currency higher. GOCS higher, 10Y 2.3255 (-1.5bps) in line with tsys after Can House Prices rose 0.1% as exp for July. 

News headlines

Who Has Leverage at the Nafta Table? It Might Not Just Be Trump (Bloomberg) From day one, President Donald Trump has imposed his will on talks to overhaul the North American Free Trade Agreement. But as his administration tries to seal the deal, it’s not clear he holds all the cards. Trump’s repeated threats to pull out of the pact have kept Mexico and Canada on their heels. The president may still brandish the threat of withdrawal to push a deal through Congress.

Turkey Central Bank Raises Benchmark Rate to 24%; Lira Rallies (Bloomberg) Turkey’s central bank raised its benchmark interest rate by the most since Recep Tayyip Erdogan came to power 15 years ago, countering the president’s call for lower borrowing costs just two hours before the decision was announced. The currency rallied. The Monetary Policy Committee led by Governor Murat Cetinkaya on Thursday increased the one-week repo rate by 625 basis points to 24 percent, more than the median estimate in a Bloomberg survey that called for a hike of 325 basis points.

Pompeo Fills State Department Gaps as He Vows Trump-Like Swagger (Bloomberg) Secretary of State Michael Pompeo isn’t one to dawdle: On his most recent trip abroad he spent just three hours in Pakistan and 24 in India before heading home. Now he’s applying the same impatience to staffing up a State Department hobbled by vacancies and shattered morale. As he rushes to fill key openings, the former CIA director is trying to rebrand his department with an image more to his liking — and more likely to appeal to his boss, President Donald Trump. Instead of overseeing a corps of cautious and cerebral diplomats, Pompeo boasts on social media that he’s leading the “Department of Swagger.”

U.S. Equity Futures Climb; Turkey Hike Boosts Lira: Markets Wrap (Bloomberg) An Asian stock rebound helped spur global equity gains as the prospect for fresh trade talks between the U.S. and China grew. Central banks dominated the rest of the agenda, with Turkey’s lira jumping after a rate hike while the Bank of England and ECB offered little to move the pound or euro. Contracts on the Dow, S&P 500 and Nasdaq all pointed to a firmer open after the U.S. government proposed another round of talks with Beijing, while automakers — among companies most-exposed to trade — led the gains as the Stoxx Europe 600 Index rose a second day. The MSCI Asia Pacific Index climbed for the first time in 11 sessions, with equities rallying in Shanghai and Hong Kong. Treasuries edged lower.

Canada’s Freeland won’t hold NAFTA talks, says more work needed (Reuters) Canadian Foreign Minister Chrystia Freeland on Wednesday said officials needed to do more work before she could hold fresh talks with the United States on renewing NAFTA as time runs out to reach a deal. A well-placed source had earlier told Reuters that Freeland planned to return to Washington for more talks on Thursday with U.S. Trade Representative Robert Lighthizer, adding that plenty of work remained.

China welcomes U.S. invite for trade talks, Asian markets relieved (Reuters) China said on Thursday that it welcomed an invitation by the United States to hold a new round of trade talks, as Washington prepares to further escalate the U.S.-China trade war with tariffs on $200 billion worth of Chinese goods. The Trump administration had invited Chinese officials to restart trade talks, the White House’s top economic adviser said on Wednesday, news that gave a lift to Asian stocks, including Chinese shares and the yuan currency.

Apple unveils new iPhones, with cheapest model starting at $1,029 (BNN) Apple Inc. took the wraps off a renewed iPhone strategy on Wednesday, debuting a trio of phones that aim to spread the company’s latest technology to a broader audience. The iPhone Xs succeeds last year’s flagship model with a faster A12 processor and updated cameras. The iPhone Xs Max is a higher-end version with a 6.5-inch OLED screen, making it one of the biggest on the market. There are 512 GB storage options for the first time. The Xs will be available in Canada starting at $1,379 and the Xs Max will start at $1,519, according to an Apple press release.

ECB still sees bond-buying phased out as rates stay on hold (BNN) The European Central Bank confirmed it will cut bond-buying in half next month and anticipates that new purchases will be halted by the end of the year. The Frankfurt-based institution said it will buy 15 billion euros (US$17 billion) of assets a month from October to December, and that a decision to halt the program after that continues to be contingent on incoming economic data. Policy makers reiterated that interest rates will remain at their present record lows “at least through the summer” of 2019. Attention now turns to President Mario Draghi’s press conference at 2:30 p.m. in Frankfurt, where he’ll present updated projections for growth and inflation and an assessment of the risks to the outlook.

Overnight markets

Overview: US 10yr note futures are down -0.118% at 119-10, S&P 500 futures are up 0.26% at 2901, Crude oil futures are down -1.34% at $69.43, Gold futures are up 0.02% at $1211.2, DXY is up 0.09% at 94.882, CAD/USD is up 0.04% at 0.769.

US Economic Data

Canadian Economic Data