The markets have stabilized this morning

Posted: Tuesday, October 30, 2018 - 08:54 EDT

The markets have stabilized this morning after equity markets sold off again yesterday.  The TSX was lower by 1.12% while the S&P500 declined by 0.66%.  The volatility has led to a flight to safety bid on the U.S. dollar.  Yields continued to trade near the lows in October with 10-year Treasuries approximately 11bps lower than the peak this month, and 10-year Canada government yields down by 18bps from October’s high. 

The economic calendar in Canada and the U.S. is lighter this morning with most investors focused on Canada’s GDP print for August tomorrow, and employment data from Canada and the U.S. on Friday.  In Europe, the Eurozone grew in the third quarter at a pace of 0.2%, which was below expectations for growth of 0.4%.  On a year over year basis, Europe is growing at a 1.7% pace, which is lower from the previous quarter of 2.2%.  Some of the underperformance was driven by temporary factors around manufacturing and construction that is expected to rebound next quarter.  However, Italy remains a concern with flat GDP growth in the country over the quarter.  There could be some concern that overall economic growth is slowing in Europe just as the ECB ends its bond buying program and is expected to move away from its zero-interest rate policy next year.  Equity markets in Europe are mixed this morning as a result.

The new issue Canadian corporate market was active yesterday will two issuers coming despite the weaker tone.  Dollarama priced a $500mil 5-year bond deal at +130bps over the curve.  There were 51 buyers involved in the Dollarama deal with late fills in the 10% range.  ATCO also launched its own hybrid bond that raised funding of $200mil 60NC10 at a 5.5% coupon.  This equated to an approximate spread of 320bps leading to 30 investors being involved in the deal and fills in the 5% neighbourhood.  The additional new supply garnered selling pressure in the secondary market as investors raised cash against the new deals.  In addition to this, the weaker tone in the market led corporate credit spreads to widen by 1-3bps to end the day.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,641.25 -0.66% -9.27% 0.32% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,721.75

-1.12%

-8.23%

-6.98%

-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

2.36%

0.02% 0.02% 0.49% 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 2.46% 0.03% 0.03% 0.19% 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

3.76%

0.05% 0.03% 0.21% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.11% 0.02% 0.05% 0.70% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 70.196 -0.523                

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.