U.S. headline CPI for December declined by 0.1% to 2.1% year over year

Posted: Friday, January 12, 2018 - 09:48 EST

U.S. headline CPI for December declined by 0.1% to 2.1% year over year.  However, core inflation ticked higher by 0.1%, to 1.8%.  The increase in core inflation reinforces the Fed expectation to increase rates this year.  Within the details, energy prices fell in the month, while food inflation moved marginally higher.  U.S. December retail sales increased at 0.4%, which was just below expectations of 0.5%.  This follows a very strong month in November that saw record Black Friday sales.  The December holiday season saw broad based increases, with the exception of clothing and sporting goods.  For December, average hourly earnings are tracking 0.4% higher year over year.

Most of the focus this morning will on U.S. bank earnings, as JP Morgan and Wells Fargo are the first to report.  Earnings this quarter will be muddied by the write down of deferred tax assets, as a result of lower corporate tax rates in the U.S., which JP Morgan reported at $2.4 billion.  However, the near term hit to earnings will pave way for more profitable future earnings, as the effective tax rate will drop from 32% to 19% this year for JPM.  Also notable in the fourth quarter results were declines in trading revenue that was lower by 26%, as a result of fixed income.  In Canada, the new issue corporate credit market was active once again as John Deere issued $300mil 5-year bonds at 70bps over the curve.  There continued to be a strong tone for credit as the new deal saw 55 buyers and late fills in the 5% range.  Secondary flows were slightly slower than the initial pace to begin the week, with spreads unchanged to end the day.

Equity Markets:

 

  Index Level % Change QTD YTD Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
S&P 500 2,767.56 0.70% 3.58% 3.58% 3.85% 3.82% 6.07% 3.09% 4.48% 6.64%
TSX

16,286.94

0.24% 0.53%

0.53%

5.45% 4.53% 2.41% -1.64% 3.68% 4.44%

Rates:

 

Today

% Change

QTD change

YTD change

Sept 30 2016

Dec 31 2016

Mar 31 2016

June 30 2017

Sept 30  2017

Dec 31  2017

Canada 5 Year

1.994%

0.04% 0.13% 0.13% 0.615% 1.150% 1.119% 1.393% 1.753% 1.866%
Canada 10 Year 2.207% 0.04% 0.16% 0.16% 0.990% 1.750% 1.625% 1.762% 2.099% 2.045%
Canada 30 Year 2.397% 0.01% 0.13% 0.13% 1.658% 2.350% 2.302% 2.148% 2.472% 2.266%
30yr Generic Corporate A rated Spread 1.210% 0.00% 0.00% 0.00% 1.530% 1.390% 1.330% 1.210% 1.240% 1.210%
30yr All-in Corporate A rated Yield

3.607%

0.01% 0.13% 0.13% 3.188% 3.740% 3.632% 3.358% 3.712% 3.476%
US 10 Year 2.550% 0.01% 0.14% 0.14% 1.60% 2.50% 2.39% 2.31% 2.33% 2.41%
CDX IG 47.260 0.914                

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.