CPI in the U.S. for May came in at consensus

Posted: Wednesday, June 12, 2019 - 10:07 EDT

CPI in the U.S. for May came in at consensus increasing by 0.1%.  On a year over year basis, headline inflation did fall from 2.0% in the previous month to 1.8% in May.  During the month, energy prices declined by 0.6% as a result of the drop in gasoline and crude prices.  This follows three straight months of stronger energy inflation that saw the previous two months increase by 3.5% and 2.9%.

Core CPI was also softer than the previous month declining by 0.1% to 2.0% on an annualized basis.  Used car sales were softer during the month while the recreation segment also led to lower inflation.  Inflation was subdued despite the U.S. implementing tariffs on Chinese imported goods.  With the lower than expected CPI this month, implied probabilities continue to price in a high likelihood that the Fed will cut rates this year.  Markets are pricing in an 81% probability that a rate cut will occur at the July meeting, which is up a couple of percent from yesterday, and a 98% probability by the end of the year.

The new issue market was active in Canada yesterday, driven by the better overall tone.  Fairfax Financial Holdings issued a $500mil 10-year bonds at +270bps over the curve.  Keyera also launched their inaugural non-investment grade hybrid deal raising $600mil 60NC10 bonds at an all-in coupon of 6.875%.  This morning, Capital Power announced that they have completed a private placement totaling $325mil.  This is split between 10-year, 12-year and 15-year senior notes with proceeds used to fund the recently completed Ontario Goreway Power Station.  In the secondary Canadian corporate credit market, the flows continued to be skewed towards investor buying.  To end the day, spreads closed approximately 1-2bps tighter.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,885.72 -0.03% 2.23% 16.18% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,248.76

0.20%

1.46%

14.95%

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

1.41%

0.00%

-0.11%

-0.48% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.51% -0.01% -0.11% -0.46% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.77% 0.00% -0.13% -0.42% 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

3.22%

0.00% -0.18% -0.18% 3.48% 3.47% 3.45% 3.72% 3.68% 3.39%
US 10 Year 2.12% -0.02% -0.28% -0.56% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 60.787 0.714                

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.