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Market Update Tsys trading higher, 10Y 2.88 (-1bp) – no reaction to Q4 GDP revision (2.5% vs 2.6% initial reading). Tsy prices supported by sharp rise in UK gilts after the release of the latest EU Brexit proposal – gilt yields 3-4bps lower.  Big slide in Asian equities, Nikkei -1.44% after Fed Powell’s hawkish testimony, European stocks -0.30%, while S&P futures are +2.75. GOCs are higher, outperforming tsys by 1bp, 10Y 2.25%. The BOC auctions $3.0bln 2Y bonds at noon – reopening of the 1.75% May 1 2020 issue- – which should do well in the context of reduced bond issuance outlined in yesterday’s budget. Month end extensions also a factor with March 1st cpn payments. Expect more corp issuance after another day in primary yest – $2.2bn including $1.25bln BMO dep note and 2 tranche $740mln Bruce Power deal .

News headlines

Stocks, Treasuries Sink on Hawkish Powell Remarks: Markets Wrap (Bloomberg) U.S. stocks sold off for the first time in three sessions and Treasuries slumped as investors weighed the potential for added interest rate hikes this year following Federal Reserve Chairman Jerome Powell’s assessment that the economy is strengthening and inflation could be gaining speed. The dollar advanced.

Slowing Euro-Area Inflation Helps Draghi Push Back Exit Talk (Bloomberg) A third month of slowing inflation in the euro-area has given European Central Bank President Mario Draghi ammunition to ward supporters of a faster stimulus exit a little while longer. The rate of price growth slowed to 1.2 percent this month from 1.3 percent, dropping to its weakest since 2016. The core measure was unchanged at 1 percent. The figures follow a series of releases that have checked the economy’s thundering momentum at the start of 2018, which had emboldened policy makers who want a faster unwinding of the central bank’s crisis-era monetary stimulus.

Mnuchin Says Trump ‘Willing’ to Negotiate U.S. Return to TPP (Bloomberg) U.S. Treasury Secretary Steven Mnuchin said Tuesday he had “begun to have very high-level conversations” on the Trans-Pacific Partnership, and rejoining the regional trade pact is an option for President Donald Trump. Trump repeatedly attacked the TPP deal on the campaign trail and pulled the U.S. out of it soon after he took over early last year. However, last month he expressed openness to rejoining if the terms were improved. Mnuchin told the U.S. Chamber of Commerce in Washington that this was significant.

U.K.’s May Is Ready to Fight With EU Over Draft Brexit Deal, Official Says (Bloomberg) Prime Minister Theresa May is preparing to reject the European Union’s draft Brexit deal when it’s published Wednesday, a senior official said, as her government steps up its fight with the bloc over the terms of Britain’s departure.

Toronto’s housing supply challenge and the growth plan paradox (Reuters) Toronto, Canada’s largest city and one of the world’s hottest property markets, has a supply problem and the nation’s housing agency admits it is not quite sure why soaring prices have not spurred more construction. New homes replace demolished ones at a sharply lower rate than early this decade, completion times for multi-family projects have doubled and prospective buyers have far fewer new homes to choose from than only a few years ago. The reason, in part, may lie in an ambitious growth plan for the greater Toronto area the Ontario province forged over a decade ago.

Valeant reports profit in fourth quarter on $1.3 billion tax benefit (Reuters) Valeant Pharmaceuticals (VRX.N) (VRX.TO) on Wednesday reported a profit in the fourth quarter compared to a year-earlier loss, as it booked a one-time benefit because of new U.S. tax laws. The Canada-based drugmaker reported a net income of $513 million or $1.45 per share in the quarter ended Dec. 31, compared to a loss of $515 million or $1.47 per share a year earlier.

Hesitant 2018 federal budget sets lofty goals, but light on spending (BNN) Three years into its mandate, the federal government has presented Canadians with a budget perhaps best described as “hesitant” – one that sets lofty ambitions for gender equity, support for the marginally employed and reconciliation with First Nations, but falls short of game-changing spending commitments on those goals.

Overnight markets

Overview: US 10yr note futures are up 0.117% at 120-17, S&P 500 futures are up 0.08% at 2749.75, Crude oil futures are down -0.05% at $62.98, Gold futures are up 0.11% at $1320.1, DXY is up 0.16% at 90.496, CAD/USD is up 0.03% at 0.7825. 

US Economic Data

Canadian Economic Data

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

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. 

US Economic Data

Canadian Economic Data

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

Market Update US tsys higher, yields 1-3 bps lower led by the 7Y, with the 10Y another 2bps lower @ 2.84%, after declining 5bps Friday. Core EGBs lagging the rally in tsys, bunds giving back some of outperformance which left the 10Y bund/tsy spd at 1yr wides. Gilts/bunds lower on hawkish comments from BOW Ramsden, stronger European equities – the stoxx up for a 3rd day, 0.60%, 36% retracement of the January pullback. GOCs higher in line with tsys, – data calendar is light this week after GOCs brushed off stronger Jan CPI, highlight is tomorrow’s Federal budget.  provis bettenfitting from ‘risk on’ environment, spds enfing ~1bp lower Friday.

News headlines

U.S. Stocks Rise With Treasuries, Dollar Mixed: Markets Wrap (Bloomberg) U.S. stocks rallied, Treasuries advanced and the dollar slipped as investors grew confident that the Jerome Powell-led Federal Reserve won’t rush to raise interest rates as the economy picks up steam. The S&P 500 Index pushed past its average price for the past 50 days and erased losses for the week with its biggest gain in almost three weeks. The gauge extended gains in afternoon trading, reversing a four-day pattern had seen it swoon. The 10-year Treasury yield slipped to 2.87 percent, roughly where it started the week, as investors dissect the Fed’s semiannual monetary policy report to Congress. The dollar was flat versus major peers.

Bond Traders Step Back From 3% to Watch Powell Navigate Fedspeak (Bloomberg) Bond traders came the closest in four years to a 3 percent yield on the 10-year Treasury note. Whether it breaches that level may be determined by how new Federal Reserve Chairman Jerome Powell handles the limelight. Powell, who took over from Janet Yellen this month, will speak before the House Financial Services Committee on Tuesday and the Senate Banking Committee two days later, in what’s known as the Humphrey-Hawkins testimony. It’ll be the first time since Powell was sworn in that bond traders get a chance to parse every word from the new Fed leader, as they did with his predecessors.

China Faces Rule by Xi for Decades With Repeal of Term Limits (Bloomberg) China’s Communist Party is set to repeal presidential term limits in a move that would allow Xi Jinping to rule beyond 2023, completing the country’s departure from a political system based on collective leadership. The party’s Central Committee announced Sunday it was seeking to end a constitutional provision that bars the head of state from serving more than two consecutive terms. That would remove the only formal barrier to Xi, who is also party leader and commander-in-chief of the military, staying in power indefinitely.

Oil Steady on Libya Halt as Saudis Promise a Smooth End to Curbs (Bloomberg) Oil steadied as Libya’s crude exports from a key terminal were disrupted and Saudi Arabia pledged that global producers will ease their output curbs without shocking the market. Futures in New York were little changed, after rising 3 percent the previous two sessions. Libya’s crude loadings from the Mellitah terminal will be “modified” after protests impeded output at the El-Feel field. Cuts by OPEC and its allies may be phased out in 2019 in a way that won’t disturb the market, Saudi oil minister Khalid Al-Falih said. Still, U.S. supply remains a threat, with the nation’s rig count rising for a fifth week to the highest since April 2015.

Federal budget plan aims for long-term resilience against volatility (BNN) With so much economic uncertainty radiating from the United States, the Trudeau government will table a federal budget Tuesday that aims to establish a firewall against all that volatility next door. Canadians can expect a budget designed to make the economy more resilient over the long term, insiders say — rather than one featuring more immediate, targeted measures to address those ever-present, Donald Trump-fuelled competitiveness and trade unknowns.

Trump says U.S. re-entering TPP a ‘possibility’ (BNN) U.S. President Donald Trump said he would consider rejoining the Trans-Pacific Partnership if the U.S. could negotiate more favourable terms. “TPP was a very bad deal for the United States. There’s a possibility we would be going in” if offered better terms, Trump said at a news conference with Australian Prime Minister Malcolm Turnbull on Friday at the White House. Turnbull was expected to encourage Trump privately to renew talks on a Pacific trade pact. The U.S. has adopted protectionist trade policies since Trump took office on a nationalist “America First” campaign.

Overnight markets

Overview: US 10yr note futures are up 0.142% at 120-29, S&P 500 futures are up 0.39% at 2759.5, Crude oil futures are down -0.05% at $63.52, Gold futures are up 0.62% at $1338.5, DXY is down -0.22% at 89.685, CAD/USD is up 0.3% at 0.7892. 

US Economic Data

Canadian Economic Data

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