As expected, the FOMC raised rates by 25 bps...

Posted: Thursday, December 20, 2018 - 09:13 EST

As expected, the FOMC raised interest rates by 25bps yesterday afternoon which now leaves the fed funds target rate range at 2.25% -2.50%.  The monetary policy statement was left mostly unchanged from the previous meeting indicating that the unemployment rate remains low, household spending continues to be strong and business fixed investment is moderating compared to earlier this year.  The committee still pledges for further gradual rate increases consistent with sustained economic expansion and inflation near the 2% objective.  The Fed will continue to monitor global economic and financial developments and assess their implications for the economic outlook.  So far, the balance sheet runoff has been smooth and the Fed does not expect to change its bond buying policy in the near term.  Powell indicated that the bottom end of the neutral range estimate has been reached leading to a fairly high degree of uncertainty on the future rate path.  The median dot plot projections should not be used as a consensus forecast, but the adjustment to two projected rate hikes in 2019 from the previous three was more dovish.

The Bank of England also wrapped up its monetary policy meeting today and will keep interest rates unchanged in light of uncertainty from Brexit.  The broader economic outlook in Britain will depend significantly on the withdrawal process with the EU and monetary policy responses will take whatever form necessary to minimize volatility.  The inflation outlook still expects CPI to slow to the 2% range, but underlying pressures continue to persist.

The Canadian corporate credit market continued to be quiet with limited flows leading up to the holidays next week.  Following the more dovish rate hike path by the Fed, the 10-year Treasury yield fell by 6bps while the 10-year Canada yield followed suit declining by 5bps.  The 2-30yr Treasury curve in the U.S. is now at its flattest point this cycle, currently standing at 30bps.  With limited volumes in corporate credit trading, spreads ended yesterday mostly unchanged.

Equity Markets:

 

  Index Level % Change QTD YTD Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
S&P 500 2,506.96 -1.54% -13.56% -4.43% 3.09% 4.48% 6.64% -0.76% 3.43% 7.71%
TSX

14,264.06

-1.06%

-10.68%

-9.46%

-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

1.88%

-0.05% -0.46% 0.02% 1.39% 1.75% 1.87% 1.97% 2.07% 2.34%
Canada 10 Year 1.95% -0.06% -0.48% -0.10% 1.76% 2.10% 2.05% 2.09% 2.17% 2.43%
Canada 30 Year 2.11% -0.07% -0.31% -0.16% 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

3.41%

-0.05% -0.31% -0.14% 3.36% 3.71% 3.48% 3.47% 3.45% 3.72%
US 10 Year 2.77% 0.02% -0.29% 0.36% 2.31% 2.33% 2.41% 2.74% 2.86% 3.06%
CDX IG 87.476 1.345                

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.