The FOMC will hold its rate decision later this afternoon

Posted: Wednesday, January 31, 2018 - 08:34 EST

The FOMC will hold its rate decision later this afternoon.  This meeting will be the final one for Yellen, who will pass the baton to Jerome Powell.  As a result, the Fed is not expected to make any drastic changes to the Fed Funds Rate as current implied probabilities only indicate a 3.8% chance that rates could be increased by 25bps.  Within the statement, investors will continue to look for clues on how the FOMC views inflation expectations, where core PCE released earlier this week is still below the 2% target.  Otherwise, President Trump held his first State of the Union address last night that provided no new details on infrastructure spending plans, although he proposed investing $200 billion into new roads and transit with additional help from the private sector.  Trump also added his four pillar plan to reform immigration in hopes that democrats will work together to avoid another government shutdown in February.

There was some weakness in the Canadian corporate credit market yesterday similar to equities.  However, corporate credit spreads have been strong to start the year with spread tightening taking a pause this week.  BMW came to market with a two tranche deal - $200mil 2yr FRN at +10bps over CDOR and $300mil 3.5yr notes at +59bps over the curve.  With the weaker tone in the market, spreads did not move tighter in secondary markets.  Overall, spreads ended the day approximately 1-2bps wider.

Equity Markets:

 

  Index Level % Change QTD YTD Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
S&P 500 2,822.43 -1.09% 5.67% 5.67% 3.85% 3.82% 6.07% 3.09% 4.48% 6.64%
TSX

15,955.51

-0.86% -1.40%

-1.40%

5.45% 4.53% 2.41% -1.64% 3.68% 4.44%

Rates:

 

Today

% Change

QTD change

YTD change

Sept 30 2016

Dec 31 2016

Mar 31 2016

June 30 2017

Sept 30  2017

Dec 31  2017

Canada 5 Year

2.072%

0.00% 0.21% 0.21% 0.615% 1.150% 1.119% 1.393% 1.753% 1.866%
Canada 10 Year 2.287% 0.01% 0.24% 0.24% 0.990% 1.750% 1.625% 1.762% 2.099% 2.045%
Canada 30 Year 2.370% 0.03% 0.10% 0.10% 1.658% 2.350% 2.302% 2.148% 2.472% 2.266%
30yr Generic Corporate A rated Spread 1.21% 0.00% 0.00% 0.00% 1.530% 1.390% 1.330% 1.210% 1.240% 1.210%
30yr All-in Corporate A rated Yield

3.580%

0.03% 0.10% 0.10% 3.188% 3.740% 3.632% 3.358% 3.712% 3.476%
US 10 Year 2.705% -0.01% 0.30% 0.30% 1.60% 2.50% 2.39% 2.31% 2.33% 2.41%
CDX IG 46.465 -1.490                

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.