All eyes will be squarely on the FOMC announcement

Posted: Wednesday, June 19, 2019 - 09:22 EDT

All eyes will be squarely on the FOMC announcement later this afternoon. Current implied probabilities are only pricing in a 23% chance that the Fed cuts rates at this meeting, although the chance that the Fed Funds Rate is lowered at the July meeting continues to remain around 80%. The non-farm payroll data in May came in well below expectations, while headline and core inflation measures during the month also dipped. Given ECB President Draghi’s rather dovish comments on Monday, Powell’s tone during the press briefing will be extremely important. In Canada this morning, inflation data for May came in stronger than expected. On a monthly basis, headline CPI rose by 0.4%. On an annual basis, CPI increased in the month from 2.0% to 2.4%. Two of the three core inflation measures increased and currently stand above 2%. However, the common core CPI measure held steady at 1.8%. Within the details, gasoline prices continued to move higher by 1.1% in the month, but were lower than the 10% gains in April. Food inflation also increased by 0.5% while recreation/education prices gained by 2.4%. The stronger than expected data is driving the front end of the Canadian yield curve higher this morning – the 2-to-10 year part of the curve is up by 6bps while long bonds are approximately 4bps higher.

Yesterday, DBRS upgraded the long-term issuer rating of Royal Bank of Canada by one notch to AA(high). The rating agency noted that RBC continues to perform better than peers backed by its strong credit fundamentals and significant franchise strength. Similar to the upgrade for TD last week, DBRS indicated the growing U.S. exposure being constructive for geographic diversification. The Canadian corporate credit market remained positive yesterday driven by President Trump’s indication he will meet with Chinese President Xi during the G-20 summit. As a result of the better sentiment, TD slipped in a new issue before today’s Fed decision. TD issued $1.75bil 12NC7 NVCC sub-debt bonds that priced at +168bps over the curve. Similar to the recent CIBC deal, there were secondary flows of financial bonds given the new issue. The new TD NVCC deal did tighten by 1-2bps to end the day while overall corporate credit spreads closed the session mostly unchanged.

Equity Markets:

  Index Level % Change QTD YTD Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
S&P 500 2,917.75 0.97% 3.42% 17.53% 6.64% -0.76%


7.71% -13.52% 13.65%





4.44% -4.52%


-0.56% -10.11% 13.29%




% Change

QTD change

YTD change

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Canada 5 Year


0.04% -0.13% -0.50% 1.87% 1.97% 2.07% 2.34% 1.89% 1.52%
Canada 10 Year 1.49% 0.03%


-0.48% 2.05% 2.09% 2.17% 2.43% 1.97% 1.62%
Canada 30 Year 1.72% 0.01% -0.18% -0.47% 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


0.01% -0.23% -0.23% 3.48% 3.47% 3.45% 3.72% 3.68% 3.39%
US 10 Year 2.09% 0.03% -0.32% -0.60% 2.41% 2.74% 2.86% 3.06% 2.69% 2.41%
CDX IG 57.277 -0.291                

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.