The European Union announced that it would look to impose fines on Italy

Posted: Wednesday, November 21, 2018 - 09:55 EST

The European Union announced that it would look to impose fines on Italy as a result of non-compliance related to the countries fiscal budget.  The most recent submission by Italy specifies a deficit at 2.4% of GDP with economic growth anticipated to grow at 1.5% next year.  The EU could initially levy fines of 0.2% of GDP and increase these penalties to 0.5% of GDP if Italy fails to rectify the budget.  Once these sanctions are launched, working with the European Union, Italy will be given six months to comply.  Despite an uncompromising stance to cut the budget deficit, there are early indications that Italy is looking to work with the EU to put in place a remedy. 

Yesterday, BOC senior deputy governor Wilkens spoke regarding a monetary policy framework renewal leading up to 2021.  If there is a downturn in the economy, the central bank does not currently have substantial room to cut rates.  As an inflation targeting framework is not perfect, the BOC will review research on higher inflation targets as well as a dual mandate.  With the current state of oil prices, Wilkens did not address the BOC’s views on energy prices and concentrated primarily on higher interest rates over time.

The new issue Canadian credit market was active yesterday despite the negative market sentiment.  Vancouver Airports wished to get ahead of the U.S. Thanksgiving holiday and came to market with a $250mil long bond priced at +124bps over the curve.  There were 27 buyers in the deal with books around $450mil.  Flows in the Canadian corporate credit market are expected to slow today leading into the U.S. Thanksgiving holiday.  Similar to yesterday, issuers remain in the background and could look to tap the market once volatility has declined.  With the weakness in the market, spreads ended the day 1-2bps wider.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,641.89 -1.82% -9.08% 0.53% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,877.00

-1.29%

-7.11%

-5.84%

-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

2.29%

0.01% -0.06% 0.42% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.35% -0.01% -0.08% 0.30% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.41% -0.02% -0.02% 0.14% 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

3.71%

0.00% -0.02% 0.16% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.07% 0.01% 0.01% 0.67% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 76.836 -2.322                

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.