BoC Governor Poloz was interviewed this morning

Posted: Tuesday, December 18, 2018 - 09:03 EST

Bank of Canada Governor Poloz was interviewed this morning and commented that global oil prices are still far below the BOC’s projection in October.  While prices for Canadian heavy crude have rebounded from their lows this year, oil prices still represent a shock to the Canadian economy.  This will factor into the January rate decision as the economy is operating more or less at capacity, unemployment is at a four decade low and inflation near the BOC’s target.    As economic data evolves, interest rates should move towards the neutral range of 2.5%-3.5%.  Additionally, Poloz does not expect the Canadian economy to go into recession in 2019, but people should be prepared for volatility.  He also stated that the USMCA agreement will, at the earliest, be implemented by next summer to overcome major hurdles, while global trade disputes remain the biggest risk to global growth.   Trade wars could lead to stagflation that would impair the use of conventional monetary policy tools to stimulate growth.  Domestically, the BOC is carefully watching how households adjust to higher interest rates, as household borrowing continues to increase.

President Trump again commented on the Fed’s rate hike trajectory, which will release its monetary policy statement tomorrow.  Trump hopes that the FOMC will avoid ‘making another mistake’ and allow interest rates to pause at this meeting.  Investors continue to expect a 25bps increase in the Fed Funds Rate on Wednesday. In the Canadian corporate credit market, the tone remained mixed post the sell-off in equity markets yesterday, while WTI crude prices now sit below $49/barrel.  Moody’s also downgraded Fair Hydro Trust bonds last evening from Aa2 to Aa3 that equalizes the rating with the Province of Ontario.  The new Conservative government in Ontario has decided to stop issuance of Fair Hydro bonds with the province providing substantial credit support.  Overall, corporate credit spreads remained weak on limited trading volume, ending the day 2-3bps wider.

Equity Markets:


  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,545.94 -2.08% -12.23% -2.96% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%





-1.64% 3.68% 4.44% -4.52% 6.77% -0.56%




% Change

QTD change

YTD change

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Canada 5 Year


-0.07% -0.37% 0.11% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 2.04% -0.06% -0.39% -0.01% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.21% -0.07% -0.21% -0.06% 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


-0.05% -0.21% -0.04% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.83% -0.03% -0.24% 0.42% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 80.573 -1.420                

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.