Overnight, the U.S. initiated the previously threatened trade tariffs on China...

Posted: Friday, July 6, 2018 - 09:49 EDT

Overnight, the U.S. initiated the previously threatened trade tariffs on China.  The U.S. will now tax approximately $34 billion worth of Chinese imports, triggering China to respond with similarly sized tariffs on U.S. goods.  The trade tension between two of the largest global economies is stoking worries of slower growth internationally.  The U.S. may add an additional $16 billion of affected goods to the current list over the next two weeks. 

Canadian employment increased by 31.8k in June, above consensus estimates of 20k, and in contrast to May’s decline 7.5k.  Full time jobs added totaled 9.1K, while part time jobs increased by 22.7k.  Most of the gains were in goods-producing and manufacturing sectors, while service sector employment declined.  By region, Ontario’s uptick of 34.9k offset declines in B.C. and Quebec.  The participation rate ticked up by 0.2% to 65.5%, resulting in a 0.2% increase to the unemployment rate to 6.0%.  Hourly earnings in Canada also declined from 3.9% to 3.5%. 

June U.S. non-farm payrolls were also strong, increasing by 213k and beating expectations of a 195k gain.  The two prior month totals were also revised higher by 37k.  Strong job markets in the U.S. continue to encourage individuals to seek jobs, leading the labour force participation rate to increase by 0.2% to 62.9%.  The unemployment rate currently stands at 4.0%, with average hourly earnings remaining stable at 2.7%. 

Strong employment numbers out of Canada and the U.S. should continue to support central banks in raising interest rates.  Markets are currently pricing in an 83% chance of a hike by the Bank of Canada next Wednesday, while the probability of a hike by the Federal Reserve is currently estimated at 81% for the September meeting.

Despite market anticipation yesterday regarding the new U.S. tariffs, the Canadian corporate credit market was mostly uneventful.  Liquidity was less than typical, as a result of the 4th of July holiday the prior day.  Enbridge Inc. bonds continued to tighten by 2-3bps following the asset disposition news, while flows in other sectors were roughly balanced.  Overall, 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 2,736.61 0.86% 0.70% 3.37% 3.82% 6.07% 3.09% 4.48% 6.64% -0.76%
TSX

16,266.61

-0.23%

-0.07%

1.88%

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

2.049%

-0.02% -0.02% 0.18% 1.150% 1.119% 1.393% 1.753% 1.866% 1.969%
Canada 10 Year 2.126% -0.04% -0.04% 0.08% 1.750% 1.625% 1.762% 2.099% 2.045% 2.091%
Canada 30 Year 2.164% -0.04% -0.04% -0.10% 2.350% 2.302% 2.148% 2.472% 2.266% 2.228%
30yr Generic Corporate A rated Spread 1.280% 0.04% 0.04% 0.04% 1.390% 1.330% 1.210% 1.240% 1.210% 1.240%
30yr All-in Corporate A rated Yield

3.444%

0.00% 0.00% -0.06% 3.740% 3.632% 3.358% 3.712% 3.476% 3.468%
US 10 Year 2.831% 0.00% -0.03% 0.42% 2.50% 2.39% 2.31% 2.33% 2.41% 2.74%
CDX IG 65.863 -0.189                

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.