Despite the U.S. initiating its trade tariffs against China on Friday...

Posted: Monday, July 9, 2018 - 09:50 EDT

Despite the U.S. initiating its trade tariffs against China on Friday and the Chinese retaliating shortly afterwards, the market toned remained positive through the day.  This morning, European equity markets are all trading in positive territory and North American equity futures are pointing towards a higher open as well.  Markets mostly dismissed the background noise from the trade tensions and focused on strong jobs data from both Canada and the U.S.  This week, attention in Canada will shift towards Wednesday’s Bank of Canada monetary policy decision.  Last Friday’s job data should give additional support for a rate hike at this meeting.  Implied probabilities of a 25 bps hike continue to edge higher, and currently stand at an 86%, a 5% increase since the employment data release.  The U.S. will release its CPI figures on Thursday with expectations for headline inflation to tick 0.1% higher to 2.9%, and core inflation to increase by the same margin to 2.3%.  Investors continue to anticipate that the Fed will hike rates once a quarter, with an 84% probability of a hike in September.

The tone in the Canadian corporate credit market also ended the week on an upbeat note.  Themes remained similar to the prior day as investors continued to focus on the Enbridge complex, following the announced asset sales to Brookfield Infrastructure.  Over the past week, spreads on Enbridge Inc. bonds tightened by almost 10 bps.  Generic corporate spreads also improved anywhere from 2-3 bps over the week, following the strong volume of new issuance in the Canadian corporate credit market leading up to the Q2 quarter end.  Earnings season is starting and the U.S. banks will begin to report later on this week, which could lead to additional issuance.

Equity Markets:

 

  Index Level % Change QTD YTD Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
S&P 500 2,759.82 0.85% 1.56% 4.25% 6.07% 3.09% 4.48% 6.64% -0.76% 3.43%
TSX

16,2371.78

0.65%

0.58%

2.54%

2.41% -1.64% 3.68% 4.44% -4.52% 6.77%

Rates:

 

Today

% Change

QTD change

YTD change

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Canada 5 Year

2.072%

0.01% 0.00% 0.21% 1.119% 1.393% 1.753% 1.866% 1.969% 2.068%
Canada 10 Year 2.155% 0.01% -0.01% 0.11% 1.625% 1.762% 2.099% 2.045% 2.091% 2.168%
Canada 30 Year 2.195% 0.01% -0.01%

-0.07%

2.302% 2.148% 2.472% 2.266% 2.228% 2.205%
30yr Generic Corporate A rated Spread 1.280% 0.04% 0.04% 0.04% 1.330% 1.21% 1.240% 1.210% 1.240% 1.240%
30yr All-in Corporate A rated Yield

3.475%

0.05% 0.03% -0.03% 3.632% 3.358% 3.712% 3.476% 3.468% 3.445%
US 10 Year 2.850% 0.03% -0.01% 0.44% 2.39% 2.31% 2.33% 2.41% 2.74% 2.86%
CDX IG 63.324 -0.674                

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.