Canadian employment for July increased at a strong pace...

Posted: Friday, August 10, 2018 - 09:10 EDT

Canadian employment for July increased at a strong pace adding 54.1k jobs versus expectations of 17k growth.  With the large number of jobs created along with a decline in the participation rate by 0.1% to 65.4%, the unemployment rate dipped by the same margin to 5.8%.  Even with a solid headline release, the details were softer.  All of the job gains were part-time employment adding 82k while full-time employment declined by 28k.  Hourly earnings also declined in the month from 3.5% to 3%.  By province, Ontario continues to exhibit exceptional job prospects with the unemployment rate in the province currently at 5.4%, which is the lowest since 2000.  July U.S. headline inflation came in at expectations, increasing by 0.2% over the month.  On a year over year basis, CPI is growing at 2.9% while core inflation ticked 0.1% higher to 2.4%.  The potential of additional trade tariffs could be a driver for higher inflation going forward especially during this period where both measures of inflation are tracking above the 2% mark.  During the month, energy prices declines which was offset by a slight increase in food costs and new vehicles.

With the relative calm in the Canadian corporate credit space, Daimler Finance Canada decided to issue a 4-year $400mil bond that priced at +108bps over the curve.  Demand for new issuance remained strong, especially during the depressed issuance levels during the summer months, with late fills in the 10% range.  The secondary markets remained active, especially with the trading of recently issued AT&T bonds.  Similar with periods of new issuance, the tone was skewed towards selling against the new issues to raise cash.  Despite some of the headlines from Turkey related to a declining currency as well as rising inflation and bond yields, the Canadian corporate credit market has mostly been insulated.  Spreads ended the day mostly unchanged.

Equity Markets:

 

  Index Level % Change QTD YTD Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018
S&P 500 2,853.58 -0.14% 5.16% 7.95% 6.07% 3.09% 4.48% 6.64% -0.76% 3.43%
TSX

16,416.98

0.62%

1.05%

3.02%

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

2.25%

-0.02% 0.18% 0.38% 1.12% 1.39% 1.75% 1.87% 1.97% 2.07%
Canada 10 Year 2.33% -0.03% 0.16% 0.28% 1.63% 1.76% 2.10% 2.05% 2.09% 2.17%
Canada 30 Year 2.34% -0.04% 0.13% 0.07% 2.30% 2.15% 2.47% 2.27% 2.23% 2.21%
30yr Generic Corporate A rated Spread 1.28% 0.00% 0.04% 0.04% 1.33% 1.21% 1.24% 1.21% 1.24% 1.24%
30yr All-in Corporate A rated Yield

3.62%

-0.04% 0.17% 0.11% 3.63% 3.36% 3.71% 3.48% 3.47% 3.45%
US 10 Year 2.90% -0.03% 0.04% 0.49% 2.39% 2.31% 2.33% 2.41% 2.74% 2.86%
CDX IG 60.907 1.638                

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.