Commentaires

Market Update US tsys weakening steadily since the start of European trading, 10Y 3.09 (+1.7bps). Equity markets rebounding, S&P futures +25 after last week’s rout (S&P -3.95%, worst week since March). News that Angela Merkel will step down as head of CDU pressuring bunds 10Y bund +4bps @0.39%. Italian BTPs rallying after S&P affirmed Italy at BBB Friday and lowered the outlook to negative from stable. Busy week for data in the US with ADP, PMI and Oct NFP Friday. Latest CFTC COT report showed specs paring back shorts from the belly out the curve, cutting short in 10s by ~70k contracts to -544k. GOCs lower in line with tsys, 10Y 2.41%. Last week’s risk off brought the GOC 10Y to the lowest levels in a month with the GOC curve continuing to flatten led by the 10Y, 2s10s barely 13bps or the narrowest since June 2007. Last week’s hawkish BOC raised the odds of a rate hike in Dec to 25% from ~14% the prior week.

News headlines

U.K.’s Hammond to Set Out a Budget That Brexit Talks Could Break (Bloomberg) It was only a few weeks ago that U.K. Prime Minister Theresa May declared an end to austerity. In doing so, she made life easier for herself but much harder for her finance minister. Chancellor of the Exchequer Philip Hammond is perceived by Brexit believers as an enemy. Terminating almost a decade’s worth of belt-tightening was always going to be tough with a sluggish economy. To attempt it in the throes of a messy divorce from the European Union is unprecedented.

China Regulator to Propose 50% Cut to Car Purchase Tax (Bloomberg) China is considering cutting a tax on most cars in half to jumpstart flagging sales in the world’s largest automotive market, triggering a surge in stocks from Volkswagen AG to Daimler AG. The country’s top economic planning body submitted a plan to key policymakers to lower the purchase tax to 5 percent for passenger vehicles with engines no bigger than 1.6 liters, according to people familiar with the matter. No decision has been made on implementation, said the people, who asked not to be identified because the information isn’t public.

Brazil Assets Jump After Bolsonaro Renews Pledge to Fix Economy (Bloomberg) Jair Bolsonaro said the words investors wanted to hear. Brazil’s next president pledged to trim the deficit, pay down debt and reduce the size of government after results showed him cruising to victory over Fernando Haddad of the left-wing Workers’ Party. An American depository receipt of Petroleo Brasileiro SA trading in pre-market hours jumped 8 percent, while the biggest overseas exchange-traded fund, the iShares MSCI Brazil ETF, added 5.6 percent. Sovereign bonds trading on European exchanges gained.

U.S. Futures Rally With Europe Stocks; Euro Swings: Markets Wrap (Bloomberg) U.S. equity futures jumped alongside European stocks as investors rediscovered some confidence at the tail end of a brutal month. The euro was whipsawed by headlines about German Chancellor Angela Merkel’s future. Contracts for the S&P 500, Dow Jones and Nasdaq indexes all rallied as the European morning wore on, with the tech gauge setting the pace amid IBM’s $33 billion purchase of Red Hat Inc. The Stoxx Europe 600 Index rose after HSBC Holdings Plc earnings beat expectations, and extended gains as automakers surged on news China’s top economic planning body is proposing to cut the tax levied on car purchases by half. Earlier in Asia the mood had been more cautious and shares were mixed, falling in Tokyo, China and South Korea and rising in Hong Kong, Australia and India.

Canada posts budget surplus in first five months of 2018-19 (Reuters) Canada recorded a budget surplus of C$2.56 billion ($1.95 billion) in the first five months of the 2018-19 fiscal year compared to a C$2.91 billion deficit in the same period a year earlier, the finance ministry said on Friday. Revenues jumped by 8.0 percent in the April-August period, reflecting a greater intake from taxes and employment insurance premiums. Program expenses increased by 2.9 percent. While the finance ministry statement did not include a line that was in the July statement, which said the results of the first four months were in line with government projections, the ministry later said the results were “broadly in line” with the fiscal forecasts.

IBM to acquire software company Red Hat for $34 billion (Reuters) IBM Corp said on Sunday it had agreed to acquire U.S. software company Red Hat Inc for $34 billion, including debt, as it seeks to diversify its technology hardware and consulting business into higher-margin products and services. The transaction is by far IBM’s biggest acquisition. It underscores IBM Chief Executive Ginni Rometty’s efforts to expand the company’s subscription-based software offerings, as it faces slowing software sales and waning demand for mainframe servers. IBM, which has a market capitalization of $114 billion, will pay $190 per share in cash for Red Hat, a 63 percent premium to Friday’s closing share price.

Trump reviewing metals tariffs on Canada (BNN) The U.S., Canada and Mexico remain at odds over metals tariffs, with Donald Trump’s envoy to Canada saying the president is reviewing them. Trump’s ambassador, Kelly Craft, argued Friday the levies on steel and aluminum imports were designed to prevent overseas metal from entering America via its neighbors. “That is not something that is against Canada,” Craft said at an event near Niagara Falls with Canada’s ambassador to the U.S., David MacNaughton. “It’s just protecting North America from other countries that will be passing raw materials through, and also to protect our steel industry at home.”

U.S. GDP grows 3.5% in third quarter on consumption, inventories (BNN) The U.S. economy expanded at a 3.5 per cent pace in the third quarter as consumers opened their wallets, businesses restocked inventories and governments boosted spending, marking the strongest back-to-back quarters of growth since 2014. The annualized rate of gains in gross domestic product compared with the 3.3 per cent median estimate in a Bloomberg survey and followed a 4.2 per cent advance in the prior three months, according to Friday’s report from the Commerce Department. Consumer spending, which accounts for about 70 per cent of the economy, unexpectedly accelerated to a 4 per cent increase — the best since 2014 — while the 0.8 per cent gain in nonresidential business investment was the weakest in almost two years. In two volatile categories, inventories provided the biggest contribution since early 2015, while the drag from trade was the largest in 33 years. Government spending rose by the most since 2016.

Overnight markets

Overview: US 10yr note futures are down -0.158% at 118-27, S&P 500 futures are up 1% at 2696.25, Crude oil futures are down -0.07% at $67.54, Gold futures are down -0.29% at $1232.2, DXY is up 0.15% at 96.504, CAD/USD is down -0.09% at 0.7639.

US Economic Data

Canadian Economic Data

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

Market Update US tsys trading higher before Q3 GDP (3.3% exp), as equities weaken significantly, US 10Y 3.085% (-3.2bps), heavy volume in TY futures (~750k). US equity futures lower with S&P -32, Nasdaq -150, Euro stocks -1.5% hitting new 2Y lows). German bunds have rallied with risk off tone, 10Y bund 5bps lower @0.35%, odds of an ECB rate hike before 2020 virtually nil after Draghi pointed to downside risks for Euro economy in press conf yest. Crude continuing to slide as well, WTI down for three weeks in longest slump since August, Stoxx 600 Oil & Gas index -2.7% to lowest since April despite positive earnings from Total & Eni. Total Q3 net $3.96bln vs $3.84bln est, but warned on spending, shares -3.1%. In Canada, GOCs are higher, outperforming tsys in 10s by 0.5bps, 10Y 2.41% at one month lows, GOC curve 6bps flatter over the week with short end anchored by hawkish BOC. 

News headlines

What Economists Are Saying Ahead of Third-Quarter U.S. GDP Data (Bloomberg) Friday’s U.S. gross domestic product report, the last before the midterm elections that will determine control of Congress, will show just how much support the tight labor market and tax cuts are offering the economy amid rising uncertainty about trade. While President Donald Trump said third-quarter growth would be “outstanding,” economists project the expansion was a bit slower than the prior period, though still strong by recent standards.

Surging Spreads Prompt More Italy Questions for ECB’s Draghi (Bloomberg) European Central Bank President Mario Draghi is facing a lot of questions on his home country these days. Concern about Italy’s expansionary fiscal plans — and at times its future in the euro area — have pushed yields to a multi-year high. With rising borrowing costs posing a risk for the transmission of monetary policy, the matter has become a key focus of ECB press conferences. Thursday’s briefing saw 32 references to Italy, beating the 24 mentions of inflation, which is core to the institution’s mandate.

Russia Pauses Rate Hikes But Warns Further Tightening Possible (Bloomberg) Russia’s central bank kept borrowing costs unchanged, pausing after a surprise hike last month but warning that inflation risks may prompt more tightening. “Pro-inflationary risks remain elevated, especially over a short-term horizon,” it said in a statement on Friday. “The Bank of Russia will consider the necessity of further increases in the key rate, taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets.”

Equities Rout Resumes; Bonds Gain Before U.S. Data: Markets Wrap (Bloomberg) Stocks in Europe renewed their sell-off along with exchange-traded funds that track U.S. benchmarks as disappointing reports from technology bellwethers marred sentiment at the end of a tumultuous week. Treasuries gained with the dollar before growth and consumer-price data in the world’s biggest economy. Downbeat results from Amazon.com Inc. and Alphabet Inc. weighed on the outlook after the S&P 500 index climbed for the first time in seven days Thursday. An ETF tracking the Nasdaq 100 Index was down 3.4 percent from its Thursday close, pointing to an ugly open for U.S. stocks. An ETF tied to the S&P 500 was down 1.7 percent.

Canadian government to release budget update on November 21 (Reuters) Canadian Prime Minister Justin Trudeau’s government will release a regular fall budget update on Nov. 21, the finance minister said on Thursday, less than a year before the next national election. Bill Morneau made the announcement on Twitter without giving any details.

Sears directors tap Evercore to examine former CEO Lampert’s deals (Reuters) Two Sears Holdings Corp SHLDQ.PK board directors have hired investment bank Evercore Inc (EVR.N) to scrutinize deals that were led by former Sears Chief Executive Eddie Lampert with the U.S. retailer before it filed for bankruptcy protection, people familiar with the matter said on Friday. The deals, including separations of Sears’ businesses and real estate, may come under examination in bankruptcy proceedings, with creditors claiming the transactions stripped the retailer of valuable assets. Billionaire Lampert is the largest shareholder and creditor of Sears through his hedge fund, ESL Investments Inc.

Here are the reasons China’s equity rout is getting even worse (BNN) Chinese equities have already lost US$3 trillion in market value since January, and hopes for better days ahead are fading. Anyone counting on a breather in this year’s final stretch got slapped with another 8.4 per cent drop for the Shanghai Composite Index so far in October, putting it on course for its worst month since early 2016. That sets the gauge up for its third-worst annual performance ever, behind a 65 per cent meltdown at the height of the global financial crisis in 2008 and a 22 per cent plunge in 1994. China has become the world’s worst place to own stocks in 2018.

Canadian housing still ‘highly vulnerable,’ but prices easing: CMHC (BNN) Real estate prices may be showing signs of easing but Canada’s housing market remains « highly vulnerable, » according to the Canadian Mortgage and Housing Corporation. The federal agency says that stricter mortgage rules, rising interest rates and smaller growth in inflation-adjusted disposable income has led to less demand for housing and a decline in prices. Despite these factors, markets in Toronto, Vancouver, Victoria and Hamilton are still considered to have a « high degree of overall vulnerability » even though house prices are getting more in line with housing market fundamentals such as income, mortgage rates and population.

Overnight markets

Overview: US 10yr note futures are up 0.33% at 118-30, S&P 500 futures are down -1.15% at 2657.25, Crude oil futures are down -1.22% at $66.51, Gold futures are up 0.41% at $1237.4, DXY is up 0.17% at 96.845, CAD/USD is up 0.55% at 0.7609.

US Economic Data

Canadian Economic Data

There is no Canadian economic data for today.

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

Market Update US tsys trading lower, 10Y 3.125% (3.5bps), heavy volume (600k) TY futures, tracking equities as the latter rebounds from yesterday’s steep losses (S&P erasing gains for the yr). S&P futures +21.5, Nasdaq +93 (+1.4%). Core Euro bonds little changed, gilts paring gains as EU and UK are close to agreeing on Brexit deal according to EU Secretary Raab. The ECB left rates unch as expected, asset purchases to continue at E15bln per month until Dec 2018. Attention turns to Draghi press conf. GOCs lower, outperforming tsys ~2bps across the curve, 10Y 2.45%, curve maintain flattening bias after yesterday’s ‘hawkish’ BOC. OIS now pricing in ~60% odds of an additional hike to 2.0% by March 2019, with Poloz emphasizing that every meeting is ‘live’, and that rates will need to rise further.

 News headlines

Trudeau’s Human Stimulus Helps Canada Match Trump’s Tax Cuts (Bloomberg) The U.S. has its fiscal stimulus. The Canadian economy? Well, it has its human stimulus. The biggest population increase in six decades, driven by international migration, is one reason the Bank of Canada has been able to match the Federal Reserve hike-for-hike since June 2017 — making the two easily the most hawkish central banks in the Group of Seven. In its latest increase Wednesday, the Ottawa-based central bank highlighted how the surge has bolstered consumption and housing activity.

Bank of Canada Raises Rates, Says Stimulus No Longer Warranted (Bloomberg) The Bank of Canada pressed ahead with a fresh interest rate increase and acknowledged for the first time in more than a decade it expects to completely remove monetary stimulus from the economy. The Ottawa-based central bank raised its overnight benchmark rate by a quarter point to 1.75 percent Wednesday, the third hike this year and fifth since it began tightening in 2017. More importantly, it dropped references to taking a “gradual approach” and added language about the need to bring rates to levels that are “neutral,” or no longer expansionary.

ECB Sticks to Plan to Rein in Stimulus (Bloomberg) The European Central Bank still intends to cap its bond-buying by year-end and leave room for an interest-rate increase late next year, even amid mounting signs that the euro-area economy is wilting under global pressures. The Frankfurt-based institution said it will buy 15 billion euros ($17 billion) of bonds a month through December, with a final decision to end the program contingent on incoming information. Policy makers reiterated that interest rates will remain at their present record lows “at least through the summer” of 2019.

U.S. Stock Futures Climb; Euro Holds Gains on ECB: Markets Wrap (Bloomberg) An equities rout that wiped out the year’s gains in U.S. stocks took a breather Thursday, as futures advanced and European shares steadied, even as Asia gauges extended declines. The euro held on to earlier gains as the European Central Bank held its key rate unchanged. The single currency rose against the dollar as the ECB said it still intended to cap its bond-buying by year-end. Core continental government bonds held gains, while peripheral bonds climbed and Treasuries fell. The Stoxx Europe 600 Index was little changed and futures on the S&P 500 Index advanced, with positive results from Tesla Inc. brightening the mood. The sentiment was darker in Asia, where shares headed lower for a third day, with Japan’s Topix index falling to the lowest in more than a year. Oil advanced from a two-month low.

U.S. dairy farmers get little help from Canada trade deal (Reuters) The dairy industry was a sticking point in the contentious renegotiations of the free trade deal between the U.S., Canada and Mexico that concluded last month. U.S. President Donald Trump demanded concessions from the protected Canadian dairy industry and said on Twitter that Canada was hurting U.S. farmers with high tariffs. After Canada gave some ground, Trump claimed a big victory and said farmers would have more export options. But Canada opened less than 4 percent of its dairy market to U.S. farmers.

Tesla shares jump as Musk delivers quarterly profit, cash (Reuters) Tesla Inc (TSLA.O) reported a net profit, positive cash flow and wider-than-expected margins for the latest quarter on Wednesday, delivering on Chief Executive Elon Musk’s promise to turn the electric carmaker profitable as higher production volumes of its new Model 3 began to pay off.

Saudi, Turkey team finds Khashoggi killing premeditated (BNN) Saudi Arabia’s prosecutor has received information from Turkish investigators suggesting the killing of government critic Jamal Khashoggi was premeditated, adding new pressure on the kingdom just as its de facto ruler courts foreign investors. The Saudi prosecution is continuing its interrogations of the suspects in light of the information and the findings of its preliminary investigations, the official Saudi Press Agency reported. The announcement comes as Central Intelligence Agency Director Gina Haspel prepares to brief U.S. President Donald Trump following a quick trip to Turkey this week. The Washington Post reported that Haspel heard an audio tape allegedly made of Khashoggi’s interrogation and killing at the Saudi consulate in Istanbul on Oct. 2.

Maple Leaf’s Q3 profit, sales fall compared with a year ago (BNN) Maple Leaf Foods Inc. (MLF.TO) saw its third-quarter profit fall compared with a year ago as its sales also slipped lower. The company says it earned $26.6 million or 21 cents per diluted share for the quarter ended Sept. 30, compared with a profit of $37.6 million or 29 cents per diluted a year ago. Sales totalled $874.8 million, down from $908.4 million.

Overnight markets

Overview: US 10yr note futures are down -0.092% at 118-17, S&P 500 futures are up 0.84% at 2686.75, Crude oil futures are up 0.34% at $67.05, Gold futures are up 0.22% at $1233.8, DXY is down -0.13% at 96.311, CAD/USD is down -0.07% at 0.7664.

US Economic Data

Canadian Economic Data

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