Canadian CPI for November declined by 0.4%

Posted: Wednesday, December 19, 2018 - 09:18 EST

Canadian CPI for November declined by 0.4%, which was in line with expectations.  On a year over year basis, headline inflation is increasing at 1.7%, declining from 2.4% in the previous month.  CPI declined to its slowest pace over the past ten months, as gasoline prices decreased in November.  All three measures of core inflation were reported at 1.9%, which is similar to previous months, hovering around the 2% range.  Lower overall inflation will give reason for the Bank of Canada to pause its rate hike path with current implied probabilities pricing in a 99% change that the central bank does not increase interest rates at the January meeting. 

Most investors are waiting for the FOMC’s monetary policy statement today, that is expected to raise rates by 25bps at this meeting.  More importantly, investors will be focused on whether the tone of the statement will turn dovish.  Fed Vice Chair Clarida, along with Powell, indicated last month that the Fed may pause its rate hike path after reaching the lower band of the neutral rate.  The BOJ also starts its two day monetary policy meetings today showing that the average yield on the central bank’s bond purchasing program now has a positive yield.  This is the highest yield since October of last year, while yields on last month’s bond buying program was still below zero.

This morning, SunLife announced that it would merge its Bentall Kennedy real estate operations with GreenOak Real Estate.  SunLife will hold a 56% equity stake in the combined entity with the right to purchase the remaining share seven years after the deal closes.  The merger will primarily be funded with $195mil cash on hand as well as a reduction by $730mil in shareholder equity.  The deal will further diversify the insurer’s real estate portfolio with very little impact to its LICAT ratio.  SunLife has indicated recently that it will look for additional acquisitions and opportunities given it is currently operating at the lower range of its leverage target.

In the Canadian corporate credit market, Trillium Health Partners issued at $200mil 40-year bond that will most likely be the last new issue of 2018.  There were 16 buyers in the deal with late fills around 30%.  In the secondary market, flows continue to be light although the positive tone yesterday led to modestly better buying.  Overall, spreads remained mostly unchanged to end the day.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,546.16 0.01% -12.22% -2.94% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,416.89

0.38%

-9.72%

-8.49%

-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

1.91%

-0.07% -0.43% 0.04% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 1.99% -0.05% -0.44% -0.05% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.17% -0.05% -0.26% -0.10% 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

3.47%

-0.03% -0.26% -0.08% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.81% 0.00% -0.25% 0.41% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 80.050 -1.669                

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.