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Market Commentary: An update on rates, GDP and Employment numbers and more

  • Andrew Masliwec, Analyst, Capital Markets

Greetings mortgage people,

It’s a half-day in the markets today, but don’t fret, we always provide our faithful commentary readers a full-days’ worth of attention. As the saying goes, ‘no days off’ or at least that’s what the Treasury Guy tells me. Afterall, where else would you get the market leading news we provide? For example, did you know First National offers 15 and 20 year commercial mortgages? Wow! No fake news here.

Rates

Benchmark interest rates are higher this week after an eventful two weeks since the last commentary. The current 5-year Government of Canada bond is yielding 1.55% and the current 10-year is yielding 1.57%. If you’ve been keeping track, the 5-10 spread is now positive signifying a slight upward slope to the yield curve.  Does that mean you can stop stock piling beans and come out of the recession bunker? Maybe, maybe not. For context, last week the 5-year GOC was yielding 1. 47% and the 10-year was yielding 1.45%. It feels like the world was so different back then.

On the credit curve, 5-year CMB’s are yielding 1.83% and the 10-year is yielding 1.97%. The 5-year is about 6 bps higher than last Friday and the 10-year is about 11 bps higher. These rates are still very low in my opinion. A year ago, the 5-year was yielding 2.70% and the 10 year was yielding 2.88%. So, it’s as good a time as ever to contact your favourite First National sales person to help with all your borrowing needs.  I swear, I am not, not getting paid to say this.

Bank of Canada

By now you know that last week the Bank of Canada decided to leave their overnight interest rate unchanged. This was widely expected by the market. What wasn’t widely expected however, was the dovish-ness of the statement. The major sentence that drew a lot of attention was: “the resilience of Canada economy will be increasingly tested”. Long story short, the Bank of Canada told the market they foresee the economy slowing due to ongoing trade conflicts and overall uncertainties. The BoC will be monitoring how housing and consumption, which are sensitive to interest rates, will evolve over the next few quarters.  Other factors they highlighted were: overall global growth slowing, the strong Canadian dollar and continuing commodity weakness.  What you need to know:  the rally in bonds after the dovish statement has been erased over the past week.

Other News

Last Thursday brought the highly anticipated August GDP number. The GDP number came in below expectations of +0.2% at +0.1% month-over-month. Overall, no interesting surprises in any basket categories. This puts year over year growth for the economy at around 1.4%, which isn’t that great but also not that bad. 

This morning we also received jobs numbers for October.  The unemployment rate remained steady MoM for October at 5.5% so nothing interesting there. The headline jobs number did disappoint though. Those surveyed expected the net change in employment to increase +15k, while actual job numbers contracted -1.8k in October. The election which was typically brings up the temporary hiring number, was much smaller than expected at 20k vs 30-50k in past elections. More concerning to me, construction and manufacturing jobs led the decline while the services and public administration led the major gains.

Finally, this week’s raising interest rates were also due to some trade deal progress, but like clock work the Trump admin reiterated how far apart they are. And back down the rates went.  Will a deal ever get done? Who knows, but apparently when it does happen, it needs to be on American soil per Trump.  Disneyland could work. After all, it is the happiest place on earth.

Have a good weekend,

Andrew