Fed Chair Powell spoke about the state of the U.S. economy

Posted: Friday, December 7, 2018 - 09:09 EST

Fed Chair Powell spoke about the state of the U.S. economy and delivered bullish comments around the job market.  Powell believes that the economy is performing very well overall, with strong job creation and gradually rising wages.  However, New York Fed President Williams, who also spoke, believes that recently announced tariffs have been a source of uncertainty with the direct impact of these taxes being relatively small so far.  He also added that a full blown trade war would be a concern, although the Fed should help markets understand Fed policy – despite the challenges of getting communication correct. 

This morning, U.S. non-farm payrolls for November increased at +155k, which was below expectations of +198k.  The prior two months were also revised lower by 12k.  The unemployment rate remained unchanged at 3.7% and the participation rate at 62.9%.  This month’s payroll data was expected to be muddied from impacts of Hurricane Florence as fewer workers were able to report to work due to inclement weather.  Average hourly earnings remained positive and increased at an annualized pace of 3.1%.  Canadian employment in November surged by 94.1k, surpassing expectations of +10k.  Full-time employment increased by 89.9k while part-time employment added 4.1k jobs.  The strong data led to an improvement in the unemployment rate from 5.8% to 5.6%, which is the lowest level since 1976.  Unfortunately, wages remain weak in Canada which increased by 1.5% year over year, and declined from the previous month of 1.9%.  The strong headline jobs number in Canada is strengthening the Canadian dollar, which is now approximately one penny better against the U.S. dollar.

The sentiment was notably weaker yesterday after OPEC, along with Russia, failed to reach an agreement to curb global oil production.  The Saudi oil minister implied that he is not confident that a deal will be completed while Iran continues to seek exemptions from U.S. sanctions, that target the country’s oil sector.  Key members of OPEC countries will convene once again today in hopes of accomplishing an agreement.  WTI crude prices are hovering around $52/barrel this morning after falling to $50 briefly last week. 

The Canadian corporate credit market was similarly cautious yesterday despite Western Canadian Select prices being $20 higher than the lows last month.  Overall, spreads widened anywhere from 2-5bps across the curve while the front end Canadian yield curve continued to decline by another 6bps yesterday.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,695.95 -0.15% -7.11% 2.70% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,937.00

-1.62%

-6.58%

-5.31%

-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

2.05%

-0.03% -0.29% 0.19% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.12% -0.01% -0.31% 0.07% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.25% 0.00% -0.17% -0.01% 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

3.55%

0.02% -0.17% 0.01% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.88% -0.01% -0.18% 0.48% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 78.016 -1.256                

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.