ECB President Draghi spoke yesterday

Posted: Tuesday, June 18, 2019 - 09:19 EDT

ECB President Draghi spoke yesterday in Portugal and pledged that the central bank would continue to provide stimulus.  Draghi added that he could resume quantitative easing and could initiate self-imposed limits on the size of additional stimulus as the balance sheet continues to grow.  Earlier in June, the ECB evaluated its monetary policy framework that included cutting rates, resuming QE, offering bank loans and tiering.  The simplest policy tool would be cutting interest rates further as Europe is facing a slowdown.  However, the tiering policy strategy would help mitigate pressure on European banks by exempting some deposits from negative rates.  Draghi continues to watch inflation which continues to decline and would provide additional motivation to provide stimulus.  As a result of the ECB’s dovish comments, rates are rallying this morning by 4-5bps.  Long Canada yields, currently at 1.66%, are now below the overnight rate of 1.75%.  The FOMC will release its statement tomorrow which will be closely watched.  Although the expectation is for the Fed to keep rates unchanged, investors are expecting a more dovish communication.

The Canadian corporate credit market was mostly benign yesterday as most of Canada was busy watching the Raptors’ championship parade.  As a result, volumes were very thin yesterday.  The new issue market remained focused on the recent ABS issue that includes GCOLT, CNH and REAL-T.  Secondary corporate credit spreads ended the day mostly unchanged.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,889.67 0.09% 2.42% 16.40% 6.64% -0.76%

3.43%

7.71% -13.52% 13.65%
TSX

16,353.46

0.32%

2.21%

15.79%

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

1.29%

-0.04%

-0.23%

-0.60% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.40% -0.04% -0.22% -0.57% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.66% -0.04% -0.23% -0.53% 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

3.11%

-0.04% -0.28% -0.28% 3.48% 3.47% 3.49% 3.72% 3.68% 3.39%
US 10 Year 2.05% -0.05% -0.36% -0.64% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 58.418 -2.086                

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.