Equity markets continue to stablize

Posted: Monday, November 5, 2018 - 09:18 EST

Equity markets continue to stabilize following comments last week from President Trump that the U.S. has again engaged with China to work on a trade agreement.  However, over the weekend, economic advisor Kudlow indicated that although the meeting between President Trump and President Xi was imminent, investors should not be too optimistic that a deal will be reached quickly.  Trump has indicated that additional tariffs on China could be possible and there has not been any draft deal between the two countries. 

The U.S. will be focused on tomorrow’s midterm election results that have the potential to see a changing of the guard in either the House or Senate.  If the Republicans lose power in either chamber, this could lead to a standstill in additional fiscal stimulus for the remainder of President Trump’s term.  This morning, Bank of Canada governor Poloz spoke in the U.K. and indicated that the lower bond yield era could be over as global economies are steadily withdrawing stimulus.  He believes that equity markets are recalibrating, with volatility normalizing.  The OIS (Overnight Index Swap) market will be important to watch as higher short-term borrowing costs could constrain company balance sheets and reduce business investment going forward.  The BOC will be focused on returning the policy rate to neutral as it weights both upside and downside risks to the economy.

The Canadian corporate credit market continued to stabilize on Friday as earnings kept trickling in.  Last week marked five new deals that totaled $3.1bil of new issuance, with the additional supply keeping spreads for tightening materially.  This week, bond investors will also be following the U.S. midterm elections, while the FOMC will release its policy statement on Thursday with only a 10.5% probability that the Fed will raise rates by 25bps.  Volumes remained light on Friday which led to spreads ending the day mostly unchanged.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,723.06 -0.63% -6.44% 3.45% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,119.28

-0.20%

-5.70%

-4.42%

-1.64% 3.68% 4.44% -4.52% 6.77% -0.56%

Rates:

 

Today

% Change

QTD change

YTD change

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Canada 5 Year

2.44%

0.03% 0.10% 0.58% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.53% 0.05% 0.10% 0.48% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.56% 0.04% 0.14% 0.30% 2.15% 2.47% 2.27% 2.23% 2.21% 2.42%
30yr Generic Corporate A rated Spread 1.30% 0.02% 0.00% 0.02% 1.21% 1.24% 1.21% 1.24% 1.28% 1.30%
30yr All-in Corporate A rated Yield

3.86%

0.06% 0.14% 0.32% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.20% -0.01% 0.14% 0.80% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 66.269 0.226                

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.