The New Year begins after considerable volatility

Posted: Wednesday, January 2, 2019 - 08:49 EST

The New Year begins after considerable volatility leading into the end of 2018.  Both Canadian and U.S. equity market indices did move higher from their lowest levels during the year that occurred in late December.  Yields also declined into year end with 10-year Canada yields currently at 1.89% and 10-year U.S. Treasury yields at 2.65%, both approximately 35bps lower than the start of December.  The U.S. government shutdown, as well as concerns surrounding trade talks between China and the U.S., has led to a strengthening in the U.S. dollar.  This shortened trading week will see employment data releases.  U.S. nonfarm payrolls are expected to add 180k jobs, while consensus for Canadian employment should add approximately 8k new jobs.  More importantly will be wage growth after the U.S. saw a 3.1% increase in average hourly earnings, while Canadian wages fell short at an increase of 1.5%.

With considerable negativity leading into year-end, sentiment in the Canadian corporate credit market was more constructive to end the year, despite lightly volumes as a result of the holiday season.  U.S. CDX spreads have widened to levels during the 2016 oil shock and currently stands at 90bps, 4bps lower than the widest level on Christmas Eve.  The tone this morning remains benign to start the year with flows expected to be light this week.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,506.85 0.85% 0.00% 0.00% 4.48% 6.64%

-0.76%

3.43% 7.71% -13.52%
TSX

14,322.86

0.71%

0.00%

0.00%

3.68% 4.44%

-4.52%

6.77% -0.56% -10.11%

Rates:

 

Today

% Change

QTD change

YTD change

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Canada 5 Year

1.82%

-0.07% -0.07% -0.07% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.89% -0.07% -0.07% -0.07% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.12% -0.07% -0.07% -0.07% 2.47% 2.27% 2.23% 2.21% 2.42% 2.18%
30yr Generic Corporate A rated Spread 1.50% 0.00% 0.00% 0.20% 1.24% 1.21% 1.24% 1.28% 1.30% 1.50%
30yr All-in Corporate A rated Yield

3.62%

-0.07% -0.07% 0.14% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.65% -0.04% -0.04% -0.04% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 90.368 2.619                

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.