U.S. Q3 GDP grew by +3.5%

Posted: Friday, October 26, 2018 - 09:07 EDT

U.S. Q3 GDP  grew by +3.5%, which beat estimates of a 3.3% gain.  Personal consumption continued to drive the U.S. economy, increasing by 4% annualized over the quarter which was the highest since 2014.  Despite the expectation for Hurricane Florence to disrupt spending and business investment, the event did not dampened growth to a large extent.  Business investment was a positive contributor driven largely from companies restocking inventories prior to the introduction of new tariffs.  The flight to safety and strong GDP print continue to support the U.S. dollar this morning. 

The ECB wrapped up its monetary policy meeting yesterday with the current interest rates remaining unchanged.  The expectation is similar to previous statements, that include keeping rates near zero until at least mid-2019. The central bank will continue to maintain its asset purchase program at 15bil euros per month until the end of this year.  During the press conference, the ECB did highlight ongoing risks including trade uncertainties, which may lead to weaker momentum but not any revised outlook on growth.  There was also discussion on Italy, which is required to revise its budget to the European Union by November 13.  The ECB still feels confident that a deal between Italy and the EU can be made, although the central bank can only offer support via its OMT mechanism if required.

Despite yesterday’s rally in risk assets, the tone this morning is weak once again.  Some of the large technology stocks that reported after market close yesterday were weaker than expected.  As a result, equity markets in Europe have opened lower by over 1% with North American futures are also expected to open up in negative territory.  The short lived positive tone yesterday led to flows in the Canadian corporate credit market skewed towards buying.  However, volumes remained light as investors mostly stayed on the sidelined during this period of volatility.  The VIX Index has risen back to levels last seen in February after a mostly sanguine summer.  Spreads ended the day mostly unchanged, although credit spreads are expected to open wider this morning.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,705.57 1.86% -7.06% 2.76% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,924.08

0.10%

-6.97%

-5.70%

-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

2.37%

-0.02% 0.03% 0.50% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.42% -0.02% -0.01% 0.37% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.45% -0.02% 0.03% 0.18% 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

3.75%

0.00% 0.03% 0.20% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.08% -0.04% 0.02% 0.67% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 70.206 1.055                

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.