U.S. CPI for December declined...

Posted: Friday, January 11, 2019 - 09:19 EST

U.S. CPI for December declined by 0.1%, which was in line with expectations.  On a year over year basis, headline inflation is running at 1.9%, which is a decline from the 2.2% reading in the previous month.  Similar to Canada, inflation declined as a result of falling gasoline prices, with the energy component in the CPI index decreasing by 3.5%.  Core inflation continued to track at 2.2%, similar to November.  With inflation slowing in the U.S., this will further give reason for the Fed to pause its rate hike path.  This echoes Fed Chair Powell’s recent comments that the central bank plans to be flexible and patient while awaiting income economic data.  Yesterday, Fed Vice Chair Clarida spoke and again delivered the same message.  In addition to being patient and data-driven, the Fed would like to offset any sustained crosswinds with monetary policy.  Inflation has surprised to the downside recently, and Clarida is unsure if inflation will move sustainably back to 2% in the near term.  Again, the Fed won’t hesitate to change the balance sheet runoff if necessary, as any balance sheet decisions must be consistent with the Federal Reserve’s goals.

CIBC issued its inaugural bail-in senior debt yesterday by tapping the market for $1.25bil 5-year bonds at +140bps over the curve.  Compared with the only existing bail-in debt issued by RBC, the new CIBC bonds came with a slight concession, and as a result order books were three times oversubscribed.  AB InBev also tapped the market in the U.S. for a six tranche deal issuing $15.5bil of debt.  The company will also look to tender for as much as $16.5bil of existing debt that will allow the company to further delever following the SABmiller acquisition.  This morning, there are rumours that AB InBev will look to IPO its Asian beer segment.  Proceeds from the IPO are expected to further reduce the company’s debt which is positive for credit spreads.  The secondary Canadian corporate credit market remained constructive yesterday.  Investors remained buyers of credit as the new issue calendar has been light to start the year.  As a result, spreads ended the day approximately 2-3bps tighter.

Equity Markets:

  Index Level % Change QTD YTD Q3 2017 Q4 2017 Q1 2018 Q2 2019 Q3 2019 Q4 2019
S&P 500 2,596.64 0.45% 3.64% 3.64% 4.48% 6.64%


3.43% 7.71% -13.52%





3.68% 4.44%


6.77% -0.56% -10.11%




% Change

QTD change

YTD change

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Canada 5 Year


-0.02% 0.01% 0.01% 1.75% 1.87% 1.97% 2.07% 2.34% 1.89%
Canada 10 Year 1.95% -0.03% -0.02% -0.02% 2.10% 2.05% 2.09% 2.17% 2.43% 1.97%
Canada 30 Year 2.16% -0.02% -0.02% -0.02% 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


-0.02% -0.02% 0.18% 3.71% 3.48% 3.47% 3.45% 3.72% 3.68%
US 10 Year 2.71% -0.03% 0.03% 0.03% 2.33% 2.41% 2.74% 2.86% 3.06% 2.69%
CDX IG 77.772 0.662                

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.