U.S. headline inflation for April increased by 2.5%

Posted: Thursday, May 10, 2018 - 09:18 EDT

U.S. headline inflation for April increased by 2.5%, which was in line with expectations.  Prices of used automobiles declined the most since 2009 while airfares dropped by the largest margin over the past four years.  Energy prices offset most of the declines as higher gasoline prices may be putting pressure on consumer spending.  Core CPI that strips out food and energy prices increased by 2.1% y/y driven higher by apparel and shelter costs.  This month’s inflation reading should leave the Fed on track to raise rates at its June meeting. 

The Bank of England released its monetary policy announcement this morning and kept interest rates unchanged, as first quarter GDP in the U.K. came in lower than expected and inflation is anticipated to slow.  The central bank still leaves the door open for policy tightening in the future, although it may come at a more gradual pace than previously expected.  During the press conference, Carney acknowledged weaker inflation and growth although some of this softness may be temporary.  Brexit continues to put a drag on investments even though declines have not intensified.  Additionally, overall consumer spending has slowed as a result of greater uncertainty, with the BOE’s forecast for U.K. consumption to grow at half the pre-Brexit rate.

The Canadian corporate credit market remained positive yesterday, driven higher by positive momentum in equity markets along with WTI crude prices above $71/barrel.  Volumes in the secondary market were more active as there were no new issues yesterday.  Spreads on the whole Enbridge complex tightened following the announcement that it would sell assets totaling approximately $3bil.  This would complete the asset sale portion of its funding plan for the year and allow Enbridge to focus on issuing the outstanding balance of its hybrids.  Following the headlines, senior bonds were approximately 3-5bps tighter across the curve while hybrids benefitted the most by tightening 10-12bps.  Outside of Enbridge, the broader corporate credit universe, spreads were anywhere from unchanged to 1bps tighter

Equity Markets:

 

  Index Level % Change QTD YTD Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
S&P 500 2,697.79 0.97% 2.31% 1.54% 3.82% 6.07% 3.09% 4.48% 6.64% -0.76%
TSX

15,910.81

0.43%

3.80%

-0.89%

4.53% 2.41% -1.64% 3.68% 4.44% -4.52%

Rates:

 

Today

% Change

QTD change

YTD change

Q4 2016

Q1 2016

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Canada 5 Year

2.199%

0.03% 0.23% 0.33% 1.150% 1.119% 1.393% 1.753% 1.866% 1.969%
Canada 10 Year 2.379% 0.03% 0.29% 0.33% 1.750% 1.625% 1.762% 2.099% 2.045% 2.091%
Canada 30 Year 2.434% 0.01% 0.21% 0.17% 2.350% 2.302% 2.148% 2.472% 2.266% 2.228%
30yr Generic Corporate A rated Spread 1.240% 0.00% 0.00% 0.03% 1.390% 1.330% 1.210% 1.240% 1.210% 1.240%
30yr All-in Corporate A rated Yield

3.674%

0.01% 0.21% 0.20% 3.740% 3.632% 3.358% 3.712% 3.476% 3.468%
US 10 Year 2.977% -0.03% 0.24% 0.57% 2.50% 2.39% 2.31% 2.33% 2.41% 2.74%
CDX IG 60.509 -0.743                

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.