The Ontario provincial government released its budget update

Posted: Friday, April 12, 2019 - 09:50 EDT

The Ontario provincial government released its budget update that expects the deficit to decline to -$10.3bil in fiscal 2019-2020.  The budget also improved the deficit for 2018-19 from a shortfall of $13.5bil to a deficit of $11.7bil.  The net debt to GDP will still be elevated in the interim at 40.7% of GDP as a result of spending on new programs that the Conservative government plans to introduce.  The new programs include a newly created childcare tax credit for low income families, and those with disabilities, as well as the previously announced $11.2bil commitment to new public transit funding.  The province anticipates GDP growth to be modest this year at 1.4%, after increasing at a rate of 2.2% in 2018.  With the deficit moving in the right direction, the PC government expects to achieve a balanced budget by 2023-24.

Overnight, Chinese trade data is pushing equity markets higher.  Chinese exports surged at a rate of 14.2% in March, beating expectations of 6.5%.  However, this reverses weak February export data that saw a decrease of 20.8%.  Imports, year over year, continue to remain lower declining by 7.6%.

Two of the large U.S. money center banks reported this morning.  JP Morgan saw first quarter earnings reported at $9.2bil that was driven by higher net interest income.  Despite no interest rate hike by the Fed over the quarter, the bank has steadily grown interest margins over the past seven years.  Investment banking remains weak with fixed income trading revenues down 8% year over year and equity trading declining by 13%.  The CET1 ratio remained stable increasing by 0.1% to 12.1% from the previous quarter. 

In the Canadian corporate credit market, the stronger tone led to continued buying of risk assets.  Following the spectrum auction and the potential for new issuance, cable and telecom names were topical yesterday with flows related to Rogers in particular.  Verizon also hosted investor meetings yesterday in Toronto which added to the telecom discussion.  Overall, spreads tightening anywhere from 1-3bps to end the day given the stronger tone.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,888.32 0.00% 1.97% 15.89% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,399.47

0.02%

1.96%

15.51%

4.44% -4.52%

6.77%

-0.56% -10.11% 13.29%

Rates:

 

Today

% Change

QTD change

YTD change

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Canada 5 Year

1.64%

0.08% 0.12% -0.25% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.77% 0.09%

0.15%

-0.20% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 2.05% 0.07% 0.16% -0.13% 2.27% 2.23% 2.21% 2.42% 2.18% 1.89%
30yr Generic Corporate A rated Spread 1.50% 0.00% 0.00% 0.00% 1.21% 1.24% 1.28% 1.30% 1.50% 1.50%
30yr All-in Corporate A rated Yield

3.55%

0.07% 0.16% 0.16% 3.48% 3.47% 3.45% 3.72% 3.68% 3.39%
US 10 Year 2.54% 0.05% 0.14% -0.14% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 56.859 -1.941                

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.