U.S. core PCE for October increased by 0.1% over the month

Posted: Thursday, November 29, 2018 - 09:43 EST

U.S. core PCE for October increased by 0.1% over the month, which translated to 1.8% on a year over year basis.  This is a slight decline from 2.0% in the previous month. Despite core PCE data dipping below the Fed’s target of 2%, both personal income and spending increased in the month by 0.5% and 0.6%, respectively.  Continued consumption by consumers should remain supportive for growth in the U.S. as the unemployment rate remains at this cycle’s lows. The much anticipated speech from Fed Chair Powell yesterday on the Framework for Monitoring Financial Stability led to a rally in equity markets late afternoon.  Powell indicated that rates are still low by historical standards and continue to remain just below the neutral rate in the economy. The latest monetary policy indicated that the neutral rate would range from 2.5%-3.5%, with the Fed breaching the lower bound of the range after 2 additional rate hikes. Investors are now weighing the potential that the Fed may not continue to raise rates aggressively after the neutral rate range is reached. Overall, Powell reiterated the same themes from vice-chair Clarida, indicating that the Fed will continue with gradual hikes while balancing the risks of either hiking too quickly or too slowly. The mildly dovish tilt to the speech led to a rally in rates, with 10-year Treasury yields now flirting with falling below 3%.

The Canadian corporate credit market remained benign yesterday, as investors were awaiting Powell’s speech in the afternoon. WTI crude prices were again pressured briefly, falling below $50/barrel although prices have moved back above $51 this morning on reports that Russia is willing to work with OPEC to curb oil production. Even with the tone generally better, spreads did not move materially and ended the day mostly unchanged with flows remaining light. Issuers are again looking to tap the market if volatility subsides. OPG announced a roadshow next week related to their recent U.S. acquisition while Loblaws is looking to tap the market for both a 5-year and 10-year bond this morning.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,743.79 2.30% -5.54% 4.44% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,171.25

1.52%

-5.23%

-3.94%

-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

2.25%

-0.04% -0.09% 0.38% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.30% -0.04% -0.13% 0.26% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.40% 0.00% -0.02% 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

3.70%

0.02% -0.02% 0.15% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.02% -0.04% -0.04% 0.61% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 75.287 1.687                

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.