The strong inflation data released this morning should reinforce the Fed’s view to increase rates...

Posted: Tuesday, June 12, 2018 - 09:08 EDT

The much anticipated meeting between President Trump and Kim Jong Un occurred last night with a historic handshake between the two leaders.  The two countries signed a two-page document that outlined a plan that will eventually see the denuclearization of North Korea while the U.S. would provide unspecified security guarantees.  The four negotiation points laid out in the agreement were more generic in nature that would allow the two nations to establish a new relationship while working towards a common goal.  Most critics are still watching for concrete steps taken by North Korea to fulfill the agreement, and as a result, equity markets in Europe are mixed to start the morning.  Equity market futures in North America are also showing a flat opening.  With the meeting now out of the way, the market will be able to focus on upcoming central bank meetings this week.

U.S. CPI for May reported this morning increased at expectations of +0.2%.  On a year over year basis, headline inflation is tracking at 2.8% which is the fastest pace in the past six years.  Headline CPI increased as a result of fuel costs although core CPI that strips out food and energy prices also increased at 2.2% year over year.  Inflation increases were broad based across most sectors.  The strong inflation data released this morning should reinforce the Fed’s view to increase rates by 25bps at tomorrow’s meeting.

The Canadian new issue calendar remained active to start the week starting with Canadian Tire pricing a two tranche deal.  Canadian Tire issued $250mil 2-year bonds at +69bps over the cure as well as $400mil 5-year bonds at +99bps over the curve with proceeds used towards the Helly Hansen acquisition.  There were 38 buyers of the 2-year bonds and 53 buyers of the 5-year bond with late fills in the 5% range.  Canadian Western Bank followed suit tapping the market with at 2-year $200mil deposit note at +87bps over the curve.  In the secondary market, volumes were active as a result of the new issues with other retail spreads benefiting from the Canadian Tire deal.  REIT bonds, especially those related to retail/REIT funding, also saw buyers.  Spreads in the broader corporate index closed the day mostly unchanged.

Equity Markets:

 

  Index Level % Change QTD YTD Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
S&P 500 2,782.00 0.11% 5.76% 4.96% 3.82% 6.07% 3.09% 4.48% 6.64% -0.76%
TSX

16,263.29

0.37%

6.40%

1.59%

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

2.140%

-0.02% 0.17% 0.27% 1.150% 1.119% 1.393% 1.753% 1.866% 1.969%
Canada 10 Year 2.304% -0.02% 0.21% 0.26% 1.750% 1.625% 1.762% 2.099% 2.045% 2.091%
Canada 30 Year 2.355% -0.01% 0.13% 0.09% 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

3.595%

-0.01% 0.13% 0.12% 3.740% 3.632% 3.358% 3.712% 3.476% 3.468%
US 10 Year 2.963% 0.01% 0.22% 0.56% 2.50% 2.39% 2.31% 2.33% 2.41% 2.74%
CDX IG 64.663 0.153                

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.