The second reading of Q3 U.S. GDP was reported at 3.5%

Posted: Wednesday, November 28, 2018 - 09:07 EST

The second reading of Q3 U.S. GDP was reported at 3.5%, similar to the first reading.  Personal consumption was revised lower from 4.0% to 3.6% during the quarter.  Details related to business investment were positive as equipment spending was revised higher to 3.5% from 0.4% which helped to offset the decline in household consumption.  Risks still surround future growth, as a result of imposed tariffs and renewed trade wars with China that could impede GDP going forward.  Later today, Fed Chair Powell will speak regarding the framework for monitoring financial stability.  This follows vice-chair Clarida’s speech yesterday that indicated a preference to keep gradually increasing short-term interest rates.  Investors will again look for cues from Powell on the pace of future rate hikes while weighing up macro-economic factors that have generated volatility over the past month.  In addition, there are reports this morning that Treasury Secretary Mnuchin has reached out to bond dealers on whether they are in favour of additional rate hikes by the Fed, or accelerating a reduction in the balance sheet.  President Trump has been quite vocal about the Fed’s decision to raise short-term interest rates over the past few months.  Current implied probabilities are still pricing in a 77% chance that the Fed raises interest rates by 25bps at the upcoming December meeting.

The Canadian corporate credit market remained soft yesterday with a continued focus on selling.  Investors will continue to watch Canadian bank earnings, as RBC is the second of the big six banks to report.  The recent weakness in oil prices, especially Western Canadian Select, has led to enhanced disclosures by banks related to oil and gas loans.  The risks so far appears to be minimal following the lessons learned during the 2015-2016 oil sell-off.  RBC ended the year with a CET1 ratio of 11.5% driven by internal capital generation and offset by an increase in share buybacks.  As more banks report and are no longer in the blackout periods, issuance of bail-in senior bonds will be in focus as loans growth remains positive.  In the secondary corporate credit market, spreads ended the day approximately 1bps wider as a result of the mildly weaker tone.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,682.17 0.33% -7.67% 2.09% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,944.09

-0.46%

-6.65%

-5.38%

-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

2.27%

-0.03% -0.07% 0.41% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.32% -0.03% -0.11% 0.28% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.38% -0.02% -0.04% 0.12% 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

3.68%

0.00% -0.04% 0.14% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.05% -0.01% -0.01% 0.65% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 77.860 -0.595                

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.