Daily Market Commentary
May 22, 2007
With almost no Data in Canada this short week, save Leading Indicators tomorrow, the GoC market will be taking their cues from the treasuries this week. Friday's retail sales report proved to be very strong, adding fuel to Canada's economic fire. This is further evidence that the yield spread between Treasuries and Canadas should be narrowing, even though it is proving to be very stubborn.
BAX futures are now implying almost two rate hikes in Canada within the next year, a sharp increase over a week ago. The CAD$ is on board, with Crude prices finally confirming the rally. What will be interesting, however, is to see if the rise in the CAD$ does the work of one or two rates hikes itself, slowing down our export led economy. Our dollar is now trading at levels not seen in 30 years, and our exporters have become quite comfortable using this crutch. Hopefully the loss of it doesn't hurt too much.
Looking at the calendar for the week, home sales numbers Thursday and Friday will be the ones to watch. Otherwise, it should be a slow trading week leading into the US long weekend.