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Financial Markets weekly newsletter

Posted on: May 05, 2017

The stats sheet

  • 3 mos CDOR .912 bps
  • 2 year GOC bonds 0.68%
  • 5 year GOC bonds .99 %
  • 10 year GOC bonds 1.54%
  • 3 mos US libor 1.171%
  • 5 yr Treasuries 1.88%
  • 10 yr Treasuries 2.35%
  • USD/CAD 1.3710
  • EUR/CAD 1.5065
  • CAD/JPY 82.30
  • GBP/CAD 1.7750

Canadian News

Another damp week after spectacular sunshine to start the year. The employment report was “meh,” as the Spanish might say, with a drop in the rate to 6.5%,a small positive print on job creation, but a poor split, as several thousand worker dropped from full time to part time again. Add to that NAFTA and softwood Lumber concerns, the drop in the price for oil and the potential overhang from the Ontario foreign buyers tax (the latest data showed increased prices in the GTA still, but a huge jump in listings). While none of these are that material in isolation, the market can’t digest them all and not get nauseous. What little hikes were on the table for 2017 are now gone, and we now expect Gov Poloz to emerge from his Ottawa burrow around the same time as Balzac Billy in Airdrie to announce whether he sees an early rate hike.

The market is wise to doubt that the BOC will be moving any time soon. It has made its preference to be patient and at-the-margin dovish fairly clear – with good reason. The loonie is doing its bit and trading weak against all major currencies, as good floating exchange rates should (take note, Eurozone) and at face value there seems little compelling reason to alter policy any time soon. This author questions that view , and after a stream of much better data in Q4 both sides of the border, when the BOC last spoke, they suggested that they might be willing to also, but with the clouds overhead, the market is now firmly of the belief that it will be business as usual moving forward.

US News

The employment report south of the border was also a little non-descript. Job creation beat expectation beat estimates, but previously months were revised down, the unemployment rate moved down to 4.4% (and further below the natural rate), and yet wages remain under control. The market is basically 100% convinced that the Fed will raise in June, with a 65% chance of another hike in 2017 in the curve also. Credit to all here. That seems about right, the Fed have been very clear on their intentions and economic touchpoints and the market has clearly been taking its ADD meds and thus has paid attention.

There are several Fed speakers up in the coming days. I would expect a continuation of the “normalizing rates somewhat” theme – but we should all keep eyes and ears peeled on this.

Currency News

Politics continues to dominate elsewhere in the world. The French Election Part Deux is coming up this weekend and it seems incredulous that Macron will not defeat Le Pen, if one looks at the polls. At 63-37, it seems that, despite having an unenviable reputation for being incorrect consistently in recent years, even the pollsters couldn’t get this one wrong. With a victory for the establishment priced in since round 1, we have sat 1.09-1.10 in the euro ever since. In the UK, the Tory government had a good night last night in local elections, winning several seats not previously held, and look odds on to clean up in the June General Election. The GBP sits above 1.2900 against the greenback, also awaiting news that we do not already know. That will likely include Brexit negotiations. The opening statements appear to have been made, with Theresa May saying she will be a “bloody difficult woman” to deal with, and Juncker suggesting that she is “deluded.” Grab a comfy seat and some popcorn- this show is going to be long with many a plot twist.

We at Financial Markets remain, as ever, All In.

Mark Johnson
Director, Financial Markets-Interest Rate Sales



Most Recent Market Updates

November 20, 2017

Natural gas gains 4.4 cents

NYMEX natural gas climbed 4.4 cents higher on Friday.

November 20, 2017

Crude gained $1.41

Crude prompt futures gained $1.41 on Friday to close the day at $56.55.

November 17, 2017

Natural gas falls 2.7 cents

NYMEX natural gas continued it’s decent on Thursday.

November 17, 2017

Crude prices slide $0.19

Crude prompt futures traded in a 69 cent range.

November 17, 2017

USDCAD range bound as Canadian CPI uneventful

Domestically we saw the biggest release of the week a few minutes ago.

November 14, 2017

Natural gas loses 5 cents

Cold weather emerged over the long weekend in the US Midwest to East as anticipated.


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