Canadian Bonds Mixed on Weak Building Permits, Rallying Crude
The Canadian government bonds were trading mixed Thursday after reading weaker than expected April building permits and rallying crude oil prices. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 1 bps to 1.395 pct and the yield on the 2-year bonds rose 1 bps to 0.581 pct by 1310 GMT.
The Canada building permits report revealed an overall decrease 7.0 pct m/m for March, below expectations for a 4.4% m/m decrease, from up 15.5% m/m increase seen for February. Yesterday, the Canada’s merchandise trade deficit widened to $3.41 billion in March, higher than the market expectation of $1.40 billion deficit, from revised $2.47 billion deficit in February (previous was -$1.91 billion). This was mainly due to weaker exports which dropped to the lowest in more than 2-years. Moreover, March exports declined 4.8 pct to CAD 41 billion (lowest since January 2014), as compared to 6.6 pct in February and shipments fell in 10 of 11 major categories, including a 6 pct fall in motor vehicles and a 5.4 pct drop in metals and non-metallic minerals.
The Canadian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Canada's target. Today, crude oil prices jumped by more than 4 pct as a huge wildfire in Canada disrupted its oil sands production, while escalating fighting in Libya threatened the North African nation's output. The International benchmark Brent futures rose 3.34 pct to $46.09 and West Texas Intermediate (WTI) climbed 3.32 pct to $ 45.19 by 1225 GMT.
Last week, the Bank of Canada’s Governor Poloz said that post-crisis global economy still faces severe headwinds and low interest rates are keeping headwinds at bay. Said trade slowdown should reverse as global economy recovers and pace of integration slower, trade at new balance point. Said troubling number of protectionist policies since the crisis and about half of trade slowdown linked to lower investment. If rates suddenly returned to 3-4 pct, a recession would occur, he added.
Furthermore, the February Gross Domestic Product (GDP) shrunk 0.1 pct m/m, beating the market expectation to fall 0.2 pct m/m, it was up 0.6 pct in January. Within goods-producing industries, agriculture fell -1.3%, utilities declined 0.2%, mining and quarrying dropped 0.8%, and manufacturing fell 0.8% in February. Meanwhile, construction rose slightly by 0.1%. Major subcategories within manufacturing declined in the month. In service sectors, wholesale trade dropped sharply by 1.8%, which as countered by retail sales’ strong growth of 1.4% in February. The markets will now look forward to Friday’s employment change data (1230 GMT).
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