The FOMC will release its monetary policy statement later this afternoon...

Posted: Thursday, November 8, 2018 - 09:47 EST

The FOMC will release its monetary policy statement later this afternoon,  although market participants expect the Fed Funds rate to remain unchanged. Currently, markets are only pricing in a a 13% probability of a 25 bps rate hike.  As reported last Friday, the labour market in the U.S. remains strong with the unemployment rate at 3.7% and 250,000 jobs created in October.  The U.S. has averaged the creation of 213k jobs per month during 2018.  The first reading of third quarter GDP came in at 3.5% and the economy is tracking for 2018 growth of around 2.9%.  Both headline and core inflation continues to trade above 2%. 

The economic calendar has been light so far this week, although Canada did release housing starts data for October. They increased by 205,900, beating expectations of 198,000.  Housing increased during the month, primarily driven by condo construction, which remains the strongest segment of the real estate market this year.  In comparison, single family homes declined over the month by 11%.  The residential segment of the market has been a slight drag on the Canadian economy this year following the new mortgage rules and higher interest rates; although the rebound in housing starts this month could indicate that the market may be rising from its lows.

There continues to be a flurry of earnings trickling in overnight and this morning.  Telus reported third quarter results with adjusted net income of $417mil, beating expectations.  As a result, the company boosted its quarterly dividend.  Telus had a strong quarter in the wireline business driven by higher promotional and customer retention activity.  The wireless segment saw an increase of 109,000 postpaid net adds with ABPU remaining flat at $68.64 and industry best churn of 0.87%.  Internet added 36,000 customers, while TV increased by 18,000.  Capital expenditure for 2019 was also confirmed at $2.85bil, which is in-line with 2018.  The Canadian corporate credit market saw better buying yesterday due to a positive tone following the U.S. midterm elections.  Despite the strong rally, similar to that in equity markets, flows tapered off in the afternoon.  Spreads ended the day tighter by 1-2bps.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,813.89 2.12% -3.30% 6.91% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,369.43

0.50%

-4.14%

-2.83%

-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

2.45%

0.00% 0.11% 0.58% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.53% 0.00% 0.11% 0.49% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.55% -0.01% 0.13% 0.29% 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

3.85%

0.01% 0.13% 0.31% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.22% -0.01% 0.16% 0.82% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 63.030 0.554                

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.