As liquidity continues to thin out in both equity and fixed income markets...

Posted: Monday, December 17, 2018 - 09:01 EST

As liquidity continues to thin out in both equity and fixed income markets going into year-end, the primary focus this week will be on the FOMC announcement this Wednesday.  Current implied probabilities are pricing in a 74% chance that a 25bps rate hike will occur this meeting, which would move the Fed Funds Rate range to 2.25%-2.50%.  The previous statement remained positive on the strength of labour markets and the declining unemployment rate.  Business fixed investment has moderated from its more robust pace earlier this year, as the uncertainty from trade tensions have led to reduced capital spending.  Even though investors are expected a rate hike this meeting, the timing of future rate increases remains uncertain.  The divided House and Senate will most likely halt excess fiscal stimulus while tensions between China and the U.S. could push inflation higher.  In Canada, CPI data will also be released on Wednesday that is expected to see headline inflation fall as a result of decreasing gasoline prices.  Economist consensus is for CPI in November to decline to 1.8% from 2.4%, with core inflation still anticipated around the 2.0% range.

On Friday, volumes in the Canadian corporate credit market remained typical of December leading up to the holidays.  Flows were still skewed towards selling, which were similar to equity markets that saw declines.  Brexit remains in the background as PM May is looking to garner additional support for the bill before bringing it forward to parliament.  She continues to deny the possibility of another referendum vote.  As a result of the weaker tone, spreads were approximately 2bps wider to close on Friday.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,599.95 -1.91% -10.37% -0.90% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,595.07

-1.05%

-8.60%

-7.36%

-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

2.03%

-0.06% -0.31% 0.17% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.09% -0.06% -0.33% 0.05% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.27% -0.06% -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%

-0.04% -0.16% 0.02% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.88% -0.01% -0.18% 0.47% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 79.707 0.377                

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.