The risk-on tone continues this morning

Posted: Tuesday, June 11, 2019 - 09:27 EDT

The risk-on tone continues this morning following another strong day in the equity markets yesterday.  The NASDAQ index was up over a percent while both Canadian and U.S. yields moved higher by 6-7bps.  This morning, European equity markets continue to trend upwards and North American yields are again up by 2bps across the curve.  PPI data out of the U.S. showed final demand in May at expectations of 0.1%.  However, on a year over year basis, PPI demand has slowed to 1.8% - which was previously 2.2% in the prior month.  Excluding food and energy, prices declined from 2.4% last month to 2.3% in May.  Although the tariffs on Chinese imported goods were increased during the month, inflation pressures did not translate through to producer prices.  Most of the softness was driven by lower energy and gasoline prices as WTI crude has fallen from approximately $65/barrel to $55/barrel to the end of May.  Lower inflation expectations going forward could give additional motivation to review the path of the Fed Funds Rate at the next meeting.  Current expectations are pricing in a 91% chance that the FOMC cuts rates by September.

With the positive tone in markets, BMW launched a three tranche ABS lease deal that is expected to price today.  The three tranches will have a weighted average life from 0.81 years to 2.73 years.  Investors will look towards the new issuance calendar next week that could include MCAP Commercial, REAL-T ABS as well as a non-investment grade rated Keyera hybrid.  Spreads continued to tighten another 1-3bps across all sectors although flows remained sporadic throughout the day.  The better tone this morning continues to support risk assets with corporate credit spreads biased towards tightening again.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,886.73 0.47% 2.26% 16.22% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,216.26

-0.09%

1.25%

14.72%

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

1.43%

0.09% -0.09% -0.45% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.54% 0.08%

-0.08%

-0.43% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.79% 0.06% -0.11% -0.40% 2.27% 2.23% 2.21% 2.42% 2.18% 1.89%
30yr Generic Corporate A rated Spread 1.45% 0.00% -0.05% -0.05% 1.21% 1.24% 1.28% 1.30% 1.50% 1.50%
30yr All-in Corporate A rated Yield

3.24%

0.06% -0.16% -0.16% 3.48% 3.47% 3.45% 3.72% 3.68% 3.39%
US 10 Year 2.17% 0.03% -0.23% -0.51% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 58.803 -1.498                

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.