U.S. CPI for October came in as expected

Posted: Wednesday, November 14, 2018 - 09:46 EST

U.S. CPI for October came in as expected with a 0.3% gain during the month.  On an annual basis, headline inflation increased to 2.5%, which is up from 2.3% in the previous month.  Global trade wars, especially between the U.S. and China, have led to higher prices and increased inflation pressures going forward.  This should continue to support the Fed’s view that the economy needs higher rates, with current implied probabilities pricing in a 75% chance the Fed Funds Rate increases by 25bps. Core inflation fell by 0.1% from the last month to 2.2%. 

Globally, the sentiment continues to be cautious this morning as oil prices slid further to close yesterday’s session.  WTI crude prices dipped briefly below $55/barrel although it has moved marginally higher above $56/barrel this morning.  OPEC nations, along with the U.S., have kept oil production at near record levels keeping pressure on oil prices as a result of the oversupply.  Yesterday afternoon, the U.K. and European Union announced that they have reached a Brexit agreement at least in principle.  Despite this, there has been considerable pushback from PM May’s own party in regards to the Brexit details, with the bill required to pass through the cabinet before any further plans may proceed.  In Europe, Italy delivered its revised budget to the EU that, as expected, did not revise down the fiscal deficit target at 2.4% of GDP.  The offset is that the government would look to sell some state-owned assets worth approximately 1% of GDP, to help lower the deficit.

The Canadian corporate credit market was affected by the oil selloff yesterday, as oil and gas sector names were wider by approximately 10bps.  The tone remains soft today with continued pressure on energy sector spreads.  Although, EPCOR Utilities decided to issue $200mil long bonds at +145bps over the curve.  The new deal was seven times oversubscribed as a result of the small size, though spreads remained flat in secondary trading.  Overall, the focus this week remains on investor roadshows that could lead to new issuance if the market sentiment allows.  In addition to EPCOR, Cordelio Power and Vancouver Airports hosted investor meetings yesterday.  As a result of the risk-off tone yesterday, non-energy corporate credit spreads ended the day approximately 2-3bps wider.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,722.18 -0.15% -6.39% 3.50% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,131.78

-0.16%

-5.62%

-4.33%

-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

2.40%

-0.04% 0.05% 0.53% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.46% -0.04% 0.04% 0.42% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.49% -0.03% 0.07% 0.23% 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

3.79%

-0.01% 0.07% 0.25% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.14% 0.00% 0.07% 0.73% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 68.618 -0.803                

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.