Brexit remains in the spotlight

Posted: Tuesday, December 4, 2018 - 08:39 EST

Brexit remains in the spotlight this morning with the U.K. parliament still set to vote on the bill on December 11.  There continues to be much divide within the British government, although Prime Minister May has indicated that the current Article 50 will not be revoked.  The cabinet also indicated that they did not discuss any contingency plans, as an alternative to the current Brexit deal vote.  Bank of England Governor Carney also spoke to parliament this morning on Brexit and defended the recent central bank’s publication of the worst-case Brexit analysis – an analysis requested by the government.  The scenario estimated that a hard-Brexit would see the U.K. economy declining by 8% along with a weakening pound and property prices plunging.  The evaluation correspondingly disclosed that U.K. banks would mostly be able to withstand the economic deterioration.  To further complicate the Brexit debate over the next five days, a member of the European Court of Justice noted that the British government still holds the unilateral power to revoke Article 50 and remain in the EU.  Withdrawing from Article 50 could perhaps allow the U.K. to better prepare for Brexit or renegotiate another deal before the hard deadline on March 29 is triggered.

There was positive sentiment yesterday as a result of constructive discussion between China and U.S.  that would delay any further tariffs for 90 days.  Oil prices continue to rebound this morning with WTI Crude prices sitting just below $54/barrel and Western Canadian Select just below $30, as a result of supply cuts by Saudi Arabia and the Province of Alberta.  The better tone led to the well-telegraphed Altagas Canada deal finally coming to market.  The new Altagas spinout raised $300mil 10-year bonds that included 31 buyers of the new issue, and late fills around 10%.  Volumes in the secondary Canadian corporate credit market remained light.  Despite the rally in equity markets, corporate credit spreads did not move materially and ended the day mostly unchanged.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,790.37 1.09% -3.90% 6.26% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,274.98

0.51%

-4.49%

-3.19%

-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

2.19%

-0.01% -0.15% 0.33% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.24% -0.03% -0.19% 0.20% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.34% -0.05% -0.08% 0.08% 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

3.64%

-0.03% -0.08% 0.10% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.96% -0.01% -0.10% 0.55% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 75.858 1.344                

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.