Yesterday, Federal Reserve Chair Powell indicated that the central bank is closely monitoring the impact of recent trade developments.

Posted: Wednesday, June 5, 2019 - 09:47 EDT

Yesterday, Federal Reserve Chair Powell indicated that the central bank is closely monitoring the impact of recent trade developments.  The Fed will act appropriately to ensure that economic expansion is sustained.  The economy continues to grow, unemployment remains near cycle lows, and inflation is stable.  The FOMC committee will continue to closely monitor risks to inflation and will actively pursue monetary policy tools posed by inflation shortfalls.  The tone of the speech mirrored those from Fed members Bullard and Evans a day earlier, which stopped just short of explicitly stating that a rate cut is expected, although it would appear that the Fed stands ready to step in if necessary.  Vice-Chair Clarida added to the list of Fed speakers this morning.  He added that the FOMC will further discuss policy framework later in the year, although the he does not expect the magnitude of tariff hikes to translate to substantial inflation.  Clarida declined to comment on whether a rate cut is being considered, however he stated that the Fed does not wish to be handcuffed by market fluctuations.  The current state of the economy remains positive while clarifying that the Fed will act appropriately if there is any evidence of a slowdown.
 
The positive tone in equity markets led the S&P500 to surge by 2.14% and the TSX to move higher by 0.94% yesterday, carried over to the Canadian corporate credit market.  The stability led to buyers stepping back into the market to pick away at the wider spread levels.  There were no specific trading themes, although buyers did emerge across the board for higher beta, BBB rated, product.  The overall more positive tone is leading to additional new issuance this morning.  TD is tapping the U.S. dollar market for a benchmark sized 5-year bail-in bond with initial price talks around 90-95bps.  Spreads ended yesterday 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 2,803.27 2.14% -0.74% 12.80% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,166.24

0.94%

0.89%

14.30%

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

1.29%

0.00%

-0.23%

-0.60% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.43% 0.01% -0.19% -0.54% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.73% 0.03% -0.16% 0.46% 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

3.23%

0.03% -0.16% -0.16% 3.48% 3.47% 3.45% 3.72% 3.68% 3.39%
US 10 Year 2.12% -0.01% -0.28% -0.56% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 65.039 -0.410                

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.