Market commentary

Jan 27, 2017

Greetings,

It’s Thursday afternoon as I release this so if something crazy happened on Friday morning, please be advised that it is not reflected here. 

It was a relatively quiet week in terms economic data.  Any volatility was generally attributable to the Donald.  Rates initially fell on Monday (by as much 6 basis points from last week’s closing levels), but slowly ground their way higher the rest of the week.  By end of day on Thursday, 5 year GoC’s were trading around 1.17% and 10 year GoC’s were at 1.82%, up 4 and 7 basis points respectively from last Friday.  The curve continues to steepen.

Equity markets are doing well.  In fact, the Dow Jones Industrial Average made history this week closing above 20,000 for the first time and setting all-time highs.  The S&P TSX Composite came tantalizingly close to setting a new record, but closed at 15,643 on Wednesday compared to 15,657 back in September 2014.  If you were wondering, the TSX composite has returned 140% since the lows back in March 2009.  That’s 11.8% annualized.  The Treasury Guy, having been filled with fear and loathing following the liquidity crisis took the conservative investment path.  Rather than doubling my money in the stock market, I’ve been earning 0.10% in my ‘high interest’ saving account at the bank.  Sigh.

In REIT news, H&R issued $200 million 7 year senior unsecured notes this week.  The bonds are rated BBB High by DBRS and were sold at GoC+194.  Proceeds will largely be used to repay maturing notes over the next several months.  At Dream Office REIT, the news is that at least 12 office building in Alberta have been sold.  Dream had previously announced its intentions to all or part of its $890 million Alberta portfolio.   Office vacancies in Calgary are reported be in excess of 20% and are predicted to increase a further 10% as new construction nears completion.  Meanwhile in BC, Cadillac Fairview has agreed to sell a 50% stake in its Vancouver portfolio to Ontario Pension Board and the Workplace Safety and Insurance Board.  Terms of the deal were not released.  Speaking of the WSIB, Treasury Guy has now worked 4,590 days without a lost time injury (assuming you exclude the paper cut incident of 2012).

Other Stuff
The Canadian dollar has bounced back since the BoC meeting last week.  Recall that Governor Poloz indicated that a rate cut was still on the table.  That led to selling of Canadian dollars.  USD/CAD traded as high as 1.3395 last Friday before touching 1.305 yesterday.

Oil rallied smartly on Thursday, closing up more than $1.00 at $53.75 amid optimism that OPEC and other producers will adhere to pledged output cuts.  The 1 year high of $54.06 is in range.  The 1 year low was $26.21 set back in February 2016.

Alternative News
While defending statements made by new White House press secretary Sean Spicer, Trump advisor Kellyanne Conway introduced a new concept last weekend.  She described his comments as “Alternative Facts”.  Among Spicer’s outlandish claims, he was quoted as saying “Donald Trump has the biggest hands of any President in history. Period.” and “The bass lines for ‘Ice Ice Baby’ and ‘Under Pressure’ are completely different.  Period.” 

Finally, a shout out to everyone celebrating the Chinese New Year on Saturday…also known as the Spring Festival.  2017 is the Year of the Rooster.  Insert Rooster joke here.

Kung Hei Fat Choi,

Treasury Guy
Jason Ellis, Managing Director, Capital Markets