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World economic news update

  • Andrew Masliwec, Analyst, Capital Markets

Hi there,

Treasury Guy is busy dealing with 1,001 things this week. So to keep the streak alive and to provide an update on what was eventful week in the markets, I am tagging in this week.

World News
Over the weekend elections were held in France to thin the herd of candidates. A clear favourite is emerging in Emmanuel Macron whose policies are far more “stay-in-the-Euro” focused than his competitor, Marine Le Pen. Not surprisingly, the Euro rallied to a 5 ½ month high vs the US dollar following Sunday’s result.   Barring any Trump/Brexit style upset, the final election on May 7th should provide more stability (less market volatility) to the Eurozone and global markets.

Speaking of Trump, on Monday he enacted a 20% tariff on Canadian softwood lumber. Not to be outdone by himself, on Wednesday the White House disclosed that they were looking into pulling out of NAFTA entirely. This was later scaled back on Thursday, as the Trump team is looking to renegotiate the treaty instead.  All-in-all this reads to us as: trade, tax and growth uncertainty will be running very high this week and going forward (more market volatility). 

Canada
The Ontario Liberal government announced their provincial budget yesterday. Among the key highlights is a 2017-2018 balanced budget. This will be the first time since pre-2008 without a deficit. On the housing front, not much was changed from their announcement last Thursday. Written in however was the increased oversight of syndicated mortgage securities, as the Ontario securities Commission will take over oversight duties from the FSCO. The province also gave the authority to municipalities to tax short-term and “transient accommodation” hoteling services – also known as an Airbnb tax.

Home Capital made the news this week as they sought a credit facility on Wednesday to help decreasing deposits over the last couple weeks. The stock was down heavily in trading Wednesday but rebounded well after the deal with HOOP was approved on Thursday. First National was also in the spotlight in trading on Wednesday along with other mortgage companies.

Rates/Securitization
Not much news on the securitization front this week, although next month there is a reissuing of the 10 year CMB bond. The 10 year CMB is currently yielding around 2.06%. The 5 year GoC’s as of writing are yielding 1.04% and the 10 year GoC’s are yielding 1.59%. The US Fed meets next Wednesday, May 3rd, and the market is calculating a very low probability of a hike at 13%.

Lacking the comedic wit of Jason, I am hoping I can end it here. I was supposed to get the team unicorn frappucinos about an hour ago.

Filling in for the Treasury Guy,

Andrew Masliwec
Analyst, Capital Markets