The tone to start the weak remains negative..

Posted: Monday, May 13, 2019 - 10:33 EDT

The tone to start the weak remains negative given the newly enacted tariffs by the U.S. on Chinese imported goods.  The U.S. raised the tax from 10% to 25% on $200bil of Chinese goods and, as expected, news reports this morning indicate that China is planning to raise tariffs on U.S. goods starting on June 1.  Trump continues to threaten China along with President Xi that the U.S. will look to enact additional enforcement on China if the country retaliates.  According to the statement from China, 2,493 of U.S. items will increase to 25% with an additional 1,078 articles will be subject to 20% tariffs.  Supplementary items will also incur taxes at lower tiers.  In total, the amount of U.S. goods that will be exposed to the new tariffs total $60bil.  On the economic front, Canada will release CPI data on Wednesday with expectations for headline inflation at 2.0%.  All three measures of core inflation are also expected to hover around the 2.0% range.  Gasoline and energy prices continue to track higher which is expected to drive inflation higher.

The Canadian corporate credit market was also weaker on Friday given the negativity surrounding global trade.  The pessimism is carrying over this morning given the additional tariff announcement by China.  On Friday, volumes were thin given the volatility.  However, a single non-investment grade deal priced – Cominar REIT tapped the market for a $200mil 5-year bond at +290bp over the curve.  Otherwise, investors stayed on the sidelines for the large part.  Spreads ended Friday unchanged to possibly 1bps wider.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,881.40 0.37% 1.87% 15.77% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX 16,297.55

 

-0.15%

1.46%

14.95%

4.44% -4.52%

6.77%

-0.56% -10.11 13.27%

Rates:

 

Today

% Change

QTD change

YTD change

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Canada 5 Year

1.57%

0.02%

0.05%

-0.32% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.69% 0.01% 0.07% -0.28% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.92% -0.01% 0.03% -0.27% 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

3.42%

-0.01% 0.03% 0.03% 3.48% 3.47% 3.49% 3.72% 3.68% 3.39%
US 10 Year 2.42% -0.04% 0.02% -0.26% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 64.193 3.586                

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.