The BoC will release its monetary policy statement this morning

Posted: Wednesday, December 5, 2018 - 08:52 EST

The Bank of Canada will release its monetary policy statement this morning with expectations for the central bank to stay on hold.  The overnight rate currently stands at 1.75%.  The focus will be on the tone of the statement, as Western Canadian Select prices fell below the last meeting’s levels back in October.  The first few trading days in December has seen a rebound in WCS to just below $30/barrel, but prices stand materially weaker than back in May.  Third quarter GDP increased at an annualized pace of 2.0%, which was in line with the BOC’s expectations for slower growth following a stronger Q2.  Investors will also look for additional clues on the pace of future hikes going forward. 

This morning, U.S. markets will be closed to honour the late President Bush.  However, sentiment remains negative after the Chinese appeared to lack details on trade talks with the U.S.  This morning, The Chinese Commerce Ministry released a statement that it has begun preparing for imports of U.S. soybeans and LNG immediately.  As trade fears persist, and that an official deal will not be finalized, the S&P500 declined by 3.24% yesterday, while the TSX index dropped by 1.38%.

Issuers continued to opportunistically tap the new issue Canadian corporate credit market yesterday even with the weaker tone.  FortisBC Energy issued $200mil long bonds with 29 buyers in the deal and fills around 40%.  AIMCO Realty followed up with a $300mil 8.5-year bond that had 29 buyers and average fills around 25-30%.  The two new issues did facilitate volumes but flows remain thin leading up to year end.  Despite the lack of large corporate credit spread movements, the yield curve exhibited a bull flattening yesterday.  Long yields declined by 8.5bps while 2-year and 5-year bonds declined by approximately 4bps in Canada.  10-year Canada yields currently stand at 2.18% which are levels last seen in July.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,700.06 -3.24% -7.00% 2.82% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

15,063.59

-1.38%

-5.81%

-4.53%

-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

2.14%

-0.04% -0.20% 0.28% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.18% -0.06% -0.25% 0.13% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.27% -0.09% -0.16% 0.00% 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

3.57%

-0.07% -0.16% 0.02% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.92% 0.00% -0.15% 0.51% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 79.146 0.000                

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.