Canadian Bonds Tad Up on Weak Manufacturing Sales, Likely to Slump on Firm Crude

Canadian Bonds Tad Up on Weak Manufacturing Sales, Likely to Slump on Firm Crude

The Canadian long-term bonds traded modestly firmer on Tuesday after reading weak March manufacturing sales. Moreover, bond prices are likely to be ruled by the movements in global crude oil. The yield on the benchmark 10-year bonds, which moves inversely to its price fell 1bp to 1.304 pct and the yield on the 30-year bonds dipped 1bp to 1.977 pct by 1330 GMT.

The Canadian March manufacturing sales declined 0.9 pct m/m, lower than the market consensus of 1.8 pct m/m fall, from prior down 3.3 pct (revised to -4.0 pct). Individually, ex-autos tumbled 0.7 pct, from down 2.2 pct (Revised to -2.9 pct), new orders fell 2.2 pct, as compared to -8.1 pct in February (Revised to -8.3 pct) and inventories dipped 0.4 pct, from down 0.7 pct in the previous month (Revised to -0.8 pct).

Moreover, 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, the crude oil prices jumped more than 3 pct after long-time bear Goldman Sachs said the market had ended almost 2-years of oversupply following global oil disruptions and flipped to a deficit. Reuters in its recent report said that supply disruptions from Nigeria, Venezuela, the United States and China triggered a U-turn in the oil outlook of Goldman Sachs, which long warned of overflowing storage and another looming crash in prices. Venezuela's oil production has already fallen by at least 188,000 barrel per day (bpd) since the start of the year as PDVSA struggles to make the investment needed to keep output steady. In the United States, crude production has fallen to 8.8 million bpd, 8.4 pct below 2015 peaks as the sector suffers a wave of bankruptcies. And in China, output fell 5.6 pct to 4.04 million bpd in April, compared with the same time last year. Meanwhile, the International benchmark Brent futures rose 0.31 pct to $49 and West Texas Intermediate (WTI) jumped 0.05 pct to $47.80 by 1300 GMT.

The markets will now focus on this week’s April core CPI and March retail sales (1230 GMT) on Friday. Canada's main stock index futures indicated a higher open for Tuesday as oil prices hovered near a 6-month high. The S&P/TSX Composite Index leaped 144.19 points, or 1.1 pct, to close Monday at 13,893.49. Futures poked up 0.2 pct Tuesday.

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