The focus today will be on the FOMC

Posted: Wednesday, June 13, 2018 - 10:11 EDT

The focus today will be on the FOMC, that is expected to raise interest rates by 25bps later this afternoon.  Current implied probabilities indicate an 84% chance of that happening.  More important than the priced-in rate hike will be the rhetoric of the Fed statement.  Labour markets continue to show strength and the FOMC dot plots are still assuming one hike per quarter. 

This morning, PPI demand for May increased by 0.5%, that was higher than expectations of 0.3%.    Producer prices increased as a result of fuel surging at the fastest pace in three years.  Excluding volatile items such as food and energy, producer prices still increased at a healthy 0.3% over the month.  The increase in core PPI could flow over to inflation that is already running at 2.8% on a year over year basis in May.  The report also indicates that prices have increased as a result of strong demand along with the imposed tariffs on steel and aluminum.  The cost of steel products increased by 4.3% in the month, which was the biggest increase since 2011.

Continuing on the same theme in the Canadian corporate credit market, the new issue calendar remained active for new supply yesterday.  Scotiabank is looking to issue short-term funding via a 1-year FRN at +12bps over 1MCDOR today, while CPPIB Capital issued $1.5bil 10-year green bonds at +71bps over the curve yesterday.  Also notable was the approval by a federal judge in the U.S to allow the merger between Time Warner and AT&T.  AT&T has been an issuer in the Canadian maple market, last issuing in 2017, and the merger announcement yesterday could lead to additional telco issuance in Canada.  As previously announced, the purchase price for AT&T was $85bil.  In the secondary market, volumes remained active with the tone skewed towards better buying.  Spreads ended 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 2,786.85 0.17% 5.95% 5.15% 3.82% 6.07% 3.09% 4.48% 6.64% -0.76%
TSX

16,302.78

0.08%

6.57%

1.75%

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

2.137%

0.00% 0.17% 0.27% 1.150% 1.119% 1.393% 1.753% 1.866% 1.969%
Canada 10 Year 2.294% -0.01% 0.20% 0.25% 1.750% 1.625% 1.762% 2.099% 2.045% 2.091%
Canada 30 Year 2.321% -0.03% 0.09% 0.06% 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

3.561%

-0.03% 0.09% 0.09% 3.740% 3.632% 3.358% 3.712% 3.476% 3.468%
US 10 Year 2.954% -0.01% 0.21% 0.55% 2.50% 2.39% 2.31% 2.33% 2.41% 2.74%
CDX IG 63.377 -0.305                

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.