Canadian GDP for September fell

Posted: Friday, November 30, 2018 - 09:19 EST

Canadian GDP for September fell by 0.1%, which missed expectations of an increase of 0.1%.  Third quarter GDP growth was reported at an annualized pace of 2.0%, while year over year GDP stands at 2.1%.  As noted by the Bank of Canada, third quarter growth was expected to fall from Q2, which was reported at 2.9%.  The energy sector displayed the largest declines as oil prices have declined from their highs earlier this year.  Household spending and business investment also fell as a result of trade uncertainty.  The Bank of Canada, which will assess incoming data for the pace of future rate hikes, and is not expected to increase the overnight rate at next week’s meeting.  Current implied probability are pricing in a 99% chance that the central bank keeps rates unchanged.

All three leaders from Canada, Mexico and the U.S. will be signing the USMCA agreement this morning, which will replace NAFTA going forward.  Despite all three countries agreeing to the deal, one large hurdle remains – the new bill must be passed in the U.S. congress which is now democrat controlled.  Previously, the democrats indicated that they would require changes to the deal, which adds a degree of uncertainty.  In addition, Canadian Prime Minister Trudeau also noted that currently imposed steel and aluminum tariffs remain obstacles, despite the new trade deal adding stability for the Canadian economy.  Otherwise, focus has shifted to this weekend G-20 meetings between China and the U.S.  President Trump and Xi are expected to meet and discuss the new tariffs, which Trump threatened to enact a new round of taxes on $200 billion worth of Chinese goods.

The new issue Canadian corporate credit market was active yesterday with Loblaws issuing two tranches – $400mil 5.5-year and $400mil 10-year bonds.  Proceeds of the new deal would be used to refinance next year’s maturity, which the company announced they would redeem after market close yesterday.  As a result of new issue concession, the 5.5-year tranche brought out 65 buys, while the 10-year bond saw 50 buyers.  Late fills for both was approximately 10%.  The new deal also repriced spreads across BBB-rated bonds, especially those related to retail exposure.  With oil prices hovering around $50/barrel this morning, energy sector spreads remain pressured.

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 2,737.76 -0.22% -5.72% 4.23% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,194.04

0.15%

-5.03%

-3.74%

-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

2.21%

-0.07% -0.14% 0.34% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.28% -0.05% -0.15% 0.23% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.38% -0.03% -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%

-0.01% -0.04% 0.14% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 3.01% -0.02% -0.05% 0.61% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 75.069 0.561                

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.