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Daily Market Commentary

Despite CPI data that confirmed the downward trend, bonds traded lower yesterday.  The 10 year continues to test a pretty significant support level around 4.25% that has held since last summer.  Strong manufacturing numbers reported yesterday helped keep our dollar strong and our bonds underperform compare to treasuries. 


Housing numbers in the US are weak, adding more evidence that the housing slide in the US is into its second wave.  This is the reason we continue to expect more economic softening in the US, and eventually rate cuts rather than more hikes.  The employment effect of a slowing housing market still has not been felt - jobs numbers are still solid as it's a lagging effect to a slowing market (it's hard to fire people).  Once we see jobs soften in the construction, real estate, and household financing sectors as a result of this continued slowdown, the prospect of lower rates will become more apparent.


The CAD$ broke well into 1.09 territory yesterday, and is holding onto most of those gains right now, even though Oil is trading lower.  Interestingly, the correlation between the CAD and the CRB commodity index seems to have broken.  The CRB, which peaked about a year ago at 360 coincided with the previous peak in the CAD (see chart in Daily FI snapshot)


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