U.S. inflation edged up marginally in July

Posted: Friday, August 11, 2017 - 09:23 EDT

U.S. inflation edged up marginally in July by 0.1% to 1.7% y/y, although below expectations of 1.8%.  CPI ex food and energy y/y continues to remain stable, similarly to last month at 1.7%.  Inflation continues to remain below the Federal Reserve’s target as a drop in lodging related to hotel and motel prices kept inflation lower.  There continues to be a decline in vehicle prices that also reflects the current weakness in U.S. auto sales.  Real average hourly earnings increased by 0.7% y/y following an adjustment higher to 0.9% in the previous month.  New York Fed president Dudley spoke yesterday and continued to caution that it will take some time for inflation to rise to the central bank’s target.  However, strength in the labour market and moderate growth trends are expected to increase inflation over the medium term back towards the 2% objective.

Tensions between the U.S. and North Korea continued to drive headlines yesterday with the S&P/TSX index down -0.94% and the S&P500 lower by 1.45%.  Asian and European equity markets are also trading lower this morning as the risk off tone continued.  Both ten year Canadian and U.S. Treasury yields were lower by approximately 5bps yesterday. 

Telus reported earnings this morning with adjusted EPS of $0.68, just below expectations of $0.72.  However, wireless postpaid net additions were up 99k and smaller net adds in wireline Internet of 17k.  Wireless postpaid churn continues to be strong at 0.79% with blended churn still below 1%.  Considering all the geo-political headlines yesterday, the Canadian corporate credit market was relatively calm.  However, spreads were not immune to the sell-off in risk assets and as a result closed generally wider by anywhere from 1-3bps.

Equity Markets:

  Index Level % Change QTD YTD Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
S&P 500 2,438.21 -1.45% 0.61% 8.91% 0.96% 2.44% 3.85% 3.82% 6.07% 3.09%
TSX 15,074.25 -0.94% -0.71% -1.40% 3.75% 5.06% 5.45% 4.53% 2.41% -1.64%

Rates:

  Today % Change QTD change YTD change March 31  2016 June 30 2016 Sept 30 2016

Dec 31 2016

March 31 2017 June 30  2017
Canada 5 Year 1.477% -0.04% 0.08% 0.33% 0.621% 0.569% 0.615% 1.150% 1.119% 1.393%
Canada 10 Year 1.862% -0.04% 0.10% 0.11% 1.225% 1.059% 0.990% 1.750% 1.625% 1.762%
Canada 30 Year 2.300% -0.04% 0.15% -0.05% 2.003% 1.714% 1.658% 2.350% 2.302% 2.148%
30yr Generic Corporate A rated Spread 1.170% 0.00% -0.04% -0.22% 1.510% 1.610% 1.530% 1.390% 1.330% 1.210%
30yr All-in Corporate A rated Yield 3.470% -0.04% 0.11% -0.27% 3.513% 3.324% 3.188% 3.740% 3.632% 3.358%
US 10 Year 2.188% -0.01% -0.12% -0.31% 1.77% 1.47% 1.60% 2.50% 2.39% 2.31%
CDX IG 61.353 -0.823                

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.