Canadian headline inflation for March came in at expectations

Posted: Wednesday, April 17, 2019 - 09:46 EDT

Canadian headline inflation for March came in at expectations of 1.9%.  Similar to the U.S., CPI rose in the month driven primarily by a surge in gasoline prices.  Gas prices have rebounded from last year jumping by 11.6% from a month ago, which is the largest increase since 2007.  The energy category moved higher by 6% while the overall goods grouping rose by 1.1%.  The headline number rose substantially from the previous month of 1.5%, while the three core inflation still range from 1.8%-2.1%.  Despite the pickup in CPI which is closer to the Bank of Canada’s target of 2%, the data should not move the needle and expectation is to keep rates unchanged for the larger part of this year.  Coupled with the softer business outlook survey released earlier this week, current implied probabilities are currently pricing a 13% chance of a rate cut out until September.

Yesterday afternoon, Moody’s upgraded Shaw Communications by one notch to Baa2 with a stable outlook.  The rating agency noted that Shaw is well supported by its strengthened balance sheet, while its transition towards a wireless operator will bolster its business profile.  Following the spectrum auction where Shaw was the recipient of the set aside pricing, the company holds ample liquidity to fund the purchase without materially increasing leverage.  As Shaw’s financial metrics continue to operate at levels better than a BBB- rated company, we will see if other rating agencies follow Moody’s upgrade action.  Both S&P and DBRS currently have Shaw at a stable outlook.  Following the upgrade, Shaw bonds tightened anywhere from 3-5bps across the curve. 

In the corporate credit market, the demand for credit continued to be strong across all sectors.  Financials were in focus yesterday after TD announced Euro-denominated funding, with Scotia following suit in the Euro market this morning.  Overall, spreads ended the day approximately 1-3bps tighter.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,907.06 0.05% 2.65% 16.66% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,502.20

-0.08%

2.60%

16.24%

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

1.68%

0.07% 0.16% -0.21% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.82% 0.07%

0.21%

-0.15% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 2.11% 0.05% 0.22% -0.07% 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

3.61%

0.05% 0.22% 0.22% 3.48% 3.47% 3.45% 3.72% 3.68% 3.39%
US 10 Year 2.60% 0.01% 0.20% -0.08% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 56.598 -0.767                

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.