Brexit negotiations officially begin this morning

Posted: Monday, June 19, 2017 - 08:27 EDT

Brexit negotiations officially begin this morning in Brussels, a year after the vote for the U.K. to leave the Eurozone.  Although very preliminary, Theresa May will lay out the legislative process with the U.K. parliament in two days’ time, followed by a second round of negotiations with EU leaders next month.  There remains a cloud of uncertainty whether Prime Minister May will be able to negotiate from a position of strength, as her Conservative party holds a minority government.  In France, President Macron was able to push through new economic reform that is pushing European equities higher this morning.  The France CAC 40 is up almost 1%.

Late Friday, the Department of Finance released proposed bail-in regulations for Canadian banks.  The proposal is open for consultation over the next month.  Initial regulations look largely in line with expectations with bail-in debt losing regulatory treatment in the final year before maturity.  The Department of Finance also noted that any subordinated bail-in NVCC instruments would be written-off prior to senior bail-in debt.  The expectation is for the new regulatory regime to be in place by January 2018, and Canadian banks to begin reporting Total Loss Absorbing Capital (TLAC) measures in November 2018.

Friday saw steady flows in the Canadian corporate credit market, following surprising news that Amazon would acquire Whole Foods in an all cash transaction for $13.7bil USD.  Domestic retailers and grocers were under pressure as Amazon presents itself as a disruptor in the industry.  However, the physical footprint of Whole Foods is very limited, only operating 11 stores across Canada.  Loblaw and Sobeys spreads ended the day anywhere from 3-5bps wider.  PSP Capital issued $1.75bil of 5yr notes on Friday at +56.5bps over Canada’s, adding additional new supply to the market.  With the new bail-in regulations released, bank deposit notes and NVCC also traded approximately 1bps wider.

Equity Markets:

  Index Level % Change QTD YTD Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
S&P 500 2,433.15 0.03% 2.98% 8.68% 6.45% 0.96% 2.44% 3.85% 3.82% 6.07%
TSX 15,192.54 0.21% -2.28%

-0.62%

-2.23% 3.75% 5.06% 5.45% 4.53% 2.41%

Rates:

  Today % Change QTD change YTD change Dec 31  2015 March 31 2016 June 30 2016 Sept 30 2016 Dec 31  2016 March 31 2017
Canada 5 Year 1.130% -0.01% 0.01% -0.02% 0.727% 0.621% 0.569% 0.615% 1.150% 1.119%
Canada 10 Year 1.510% -0.01% -0.12% -0.24% 1.390% 1.225% 1.059% 0.990% 1.750% 1.625%
Canada 30 Year 2.022% -0.01% -0.28% -0.33% 2.147% 2.003% 1.714% 1.658% 2.350% 2.302%
30yr Generic Corporate A rated Spread 1.260% 0.00% -0.07% -0.13% 1.610% 1.510% 1.610% 1.530% 1.390% 1.330%
30yr All-in Corporate A rated Yield 3.282% -0.01% -0.35% -0.46% 3.757% 3.513% 3.324% 3.188% 3.740% 3.632%
US 10 Year 2.145% -0.01% -0.24% -0.35% 2.28% 1.77% 1.47% 1.60% 2.50% 2.39%
CDX IG 60.428 -1.074                

The information contained herein is intended for advisors for general information only and is compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made as to its accuracy. All opinions contained in the commentary and expressed by the portfolio manager are subject to change without notice and are provided in good faith without legal responsibility. All market data is sourced from Bloomberg.