The tone this morning is opening up mildly better

Posted: Monday, October 29, 2018 - 09:07 EDT

The tone this morning is opening up mildly better than the volatile theme from last week.  Overnight, China announced that it plans to reduce the purchase tax on cars by 50%, leading to a tax rate of 5% for passenger vehicles.  This year, auto sales in China have softened and are on track to post their first annual decline in two decades.  The announcement today should be positive for automakers positioned in the Asian country.

In Germany, party leader Merkel announced her plans to step down as Chancellor after her term ends in 2021.  This would mark the end of an era after two decades at the helm of her party.  Despite the surprising news, market reaction has been mostly subdued with the more constructive tone leading to European equity markets trading higher this morning. 

On the economic front, the U.S. released core PCE for September that remained at 2.0% on a year-over-year basis.  This continues to track along the Fed’s target although personal incomes declined to 0.2% in the month, from 0.4% previously.  On Friday, both Canada and the U.S will release employment data for October.  The U.S. is expected to continually increase non-farm payrolls by 193k for last month, while Canada is predicted to add 12.5k jobs.

The Canadian corporate credit market ended Friday with very light flows as investors stepped away from the volatility for the most part.  The negative sentiment lead to spreads anywhere from 3-8bps wider over the week, across various names although the lack of new issue supply has helped to maintain spreads from widening materially.  There continues to be decent trading in bank paper, especially investor buying of legacy deposit notes.  Spreads on Friday ended the day mostly unchanged although the tone remains tepid to start the week.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,658.69 -1.73% -8.67% 0.98% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,888.26

-0.24%

-7.20%

-5.93%

-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

2.35%

-0.04% 0.01% 0.49% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.41% -0.04% -0.02% 0.36% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.44% -0.04% 0.02% 0.17% 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

3.74%

-0.02% 0.02% 0.19% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.10% 0.02% 0.03% 0.69% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 69.186 -0.796                

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.