The ongoing trade feud between China and the U.S. reignited this morning

Posted: Tuesday, November 27, 2018 - 09:12 EST

The ongoing trade feud between China and the U.S. reignited this morning, after President Trump indicated that he would proceed with increasing tariffs on $200 billion of Chinese imported goods.  The two countries are expected to meet this weekend at a G20 summit to resume negotiations although Trump plans to enact the additional taxes if a deal is not confirmed.  The President additionally signaled that the tax rate could either be 10%, or 25% targeted at electronics manufactured in China, that includes components related to Apple products.  Chinese foreign ministers continue to work with the U.S. to produce a positive outcome in the trade talks. 

This morning, Scotiabank reported fourth quarter 2018 earnings with full year adjusted income at $9.1bil, up 10% year-over-year.  Earnings were driven by an improved cost cutting environment with the efficiency ratio improving by 190bps and operating leverage remaining positive.  The bank continues to be focused near-term on recent acquisitions that include the purchase of two Canadian asset managers and four acquisitions in their Latin America operations.  The final two acquisitions in Peru and the Dominican Republic are expected to close in Q1 2019.  Scotiabank’s CET1 ratio declined by 0.2% from last quarter to 11.2%, as a result of the recent acquisitions.  This factor also impacted net interest margins in the international banking division, though Canadian banking NIMs increased by 4bps over the year as result of higher interest rates.

Fed vice-chair Clarida is speaking this morning and noted that the U.S. economy remains robust, as labour markets continue to be healthy.  Raising rates too quickly, in his view, could shorten the current economic expansion although moving too slowly could result in rising inflation costs.  He supports the Fed’s gradual rate hike cycle although the neutral rate remains a learning process for the Fed.  Clarida continues to watch business investment in the U.S. after a softer Q3.  Despite the positive tone on the economy, global macroeconomic worries continue to weigh on the market. 

The Canadian corporate credit market was again quiet following the U.S. holiday weekend, although Canadian Credit Card Trust did issue an ABS deal that raised approximately $635mil across three tranches.  The new issue priced at +80bps, +155bps, and +235bps across the curve for each of the tranches respectively.  In the secondary market, spreads remained weak with flows skewed towards client selling.

Equity Markets:


  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,673.45 1.55% -7.97% 1.75% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%





-1.64% 3.68% 4.44% -4.52% 6.77% -0.56%




% Change

QTD change

YTD change

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Canada 5 Year


0.00% -0.05% 0.42% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.34% 0.00% -0.09% 0.29% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.39% 0.00% -0.03% 0.13% 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


0.02% -0.03% 0.15% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.06% 0.01% 0.00% 0.65% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 80.256 1.316                

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.