North American equity markets rallied on Friday

Posted: Monday, January 7, 2019 - 08:44 EST

North American equity markets rallied on Friday after the interview with current Fed Chair Powell, along with former chairs’ Yellen and Bernanke.  The TSX index ended the day 1.50% higher while the S&P500 increased by 3.43%.  During the question and answer period, Powell suggested that the Fed could take a pause in their current quarterly rate hike path as well as adjusting the pace of the balance sheet reduction plan if the economy encounters any signs of faltering.  The message on Friday was supported by both Yellen and Bernanke, sensing that growth will slow in 2019, but would likely end up above potential.  Strong labour markets could eventual lead to further tightening with the opening remarks praising the strength in average hourly earnings in December.  The tone this morning remains mixed despite the Fed’s dovish comments providing a lift on Friday.  Brexit remains a concern, while the continued government shutdown will see several economic releases delayed this week that include today’s factory orders and tomorrow’s trade data.

The Canadian corporate credit market also rallied after the constructive comments by the Fed, but again volumes were thin following the New Year’s holiday.  As most investors return to work this week, flows are expected to pick up as well any opportunistic new issuance from issuers if the tone remains positive.   On Friday, Ford Credit followed their U.S. counterparts by issuing a three year FRN that priced at +303bps over 3-month CDOR. 

Investors will be focused on the Bank of Canada announcement this coming Wednesday that is expected to see the central bank keep the overnight rate on hold at 1.75%. December’s statement did address the decline in oil prices that have rebounded from their lows.  Lower gasoline prices to start the year will keep inflation contained while trade uncertainty is expected to weigh on business investment.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,531.94 3.43% 1.03% 1.03% 4.48% 6.64%

-0.76%

3.43% 7.71% -13.52%
TSX

14,426.62

1.50%

0.73%

0.73%

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

1.83%

0.07% -0.06% -0.06% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.90% 0.07% -0.07% -0.07% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.11% 0.04% -0.08% -0.08% 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

3.61%

0.04% -0.08% 0.12% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.65% -0.02% -0.04% -0.04% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 84.136 0.492                

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.