Happy New Year.
I guess it’s been a while since my last posting. I thought about making a resolution to make a bigger commitment to this blog, but I’ve never really subscribed to pagan rituals like resolutions. Besides, I do this thing pro-bono publico.
Anyway, at this point it would not be unreasonable to expect some kind of ‘Year in Review’ or ‘Top Trends for 2017’ content, but both of those require a great deal of effort, research and knowledge. To be honest, it’s Friday morning and I’ve got about 30 minutes until ‘press time’, so I’m afraid it’s going to be the usual last minute drivel you’ve become accustomed to.
That said, we can at least do the equivalent of a ‘before and after’ thing with some key financial metrics to refresh our memory on where we started 2016 relative to where we finished. I’ll even add in my predictions for where we will be at the end of 2017. Please note however, that these predictions are actually total guesses and are not supported by any effort, research, triangulation, interpolation or extrapolation. I hold no degree in economics and anything I learned from my CFA is long forgotten. Nonetheless, in the unlikely event that any of my predictions end up being even remotely accurate, I’m going to start charging some kind of subscription fee for this.
| | Dec 31 2015
| Jun 30 2016
| Dec 31 2016
| Dec 31 2017
|
|---|
| 5 Year Gov't of Canada Bond Yield
| 0.73%
| 0.57%
| 1.11%
| 1.50%
|
| 10 Year Gov't of Canada Bond Yield
| 1.40%
| 1.06%
| 1.72%
| 2.00%
|
| 5 Year NHA-MBS Spread
| +96
| +86
| +76
| +65
|
| 5 Year Sched 1 Bank Senior Deposit Note Spread
| +135
| +115
| +92
| +95
|
| Oil ($US WTI)
| $37.04
| $48.33
| $53.72
| $65.00
|
Jumping back into the present, Canadian Employment and US Non-Farm Payrolls were announced this morning. Net change in employment for December in Canada was a remarkable +53.7k against an expected -2.5k. Even more impressive is the fact that employers created +81k full-time jobs while eliminating 27k part-time jobs. Predictably, bond yields have jumped (prices have fallen) on the news. 5 year GoC’s are up 8bps to 1.12%. 10 year GoC’s are also up 8bps to 1.72%.
In the US, Non-farm payrolls added 156k in December versus +178k expected with unemployment in line at 4.7%. More significantly though, was a sharp gain in earnings. Hourly wages jumped 10 cents to $26 representing a 2.9% annualized gain. US bond yields are up a similar 7-8 bps on the news.
Remember…positive economic news can turn a central bank “Hawkish” which could suggest higher rates (lower bond prices) to contain the risks of inflation. That’s the theory anyway…they’ve done studies. 60% of the time, it works every time. The next BoC meeting is on January 18th and we aren’t expecting any change from the current overnight rate of 0.50%. The FED next meets on February 1st with a 12% probability of another 0.25% hike.
The move in rates this morning reverses much of the trend lower over the last several trading days. In fact, yields had fallen as much as 15bps since Christmas as the market began weighing the prospect that trades based on Trumps impending presidency had gone too far.
In important local news, Toronto’s Molson Amphitheatre is changing its name. This summer, it will be known as the Budweiser Stage. Personally, I think Trump must be behind it and don’t like it one bit.
Cheers,
Treasury Guy.
Jason Ellis, Managing Director, Capital Markets