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Daily Market Commentary

As expected, the Bank of Canada raised their target for the overnight rate to 4.5% yesterday.  Though not as hawkish as the market initially expected, their accompanying statement acknowledged that inflation had been stronger than forecast and they left the door open for "some modest further increases" for the remainder of the year.  Additionally, the bank now sees expectations for Canadian economic growth to reach 2.5% for '07 (up from 2.2% previously).  It's likely we'll see another rate hike in the near term, with the bank standing pat thereafter.

 

 

 

Bonds rallied off the back of this data, but this was coupled with the story that credit rating agency S&P had put on a review downgrade for approximately 600 odd sub-prime MBS.  This flight to quality bid on government-backed securities snowballed the rally (with overall corporate spreads widening sharply).  Ten year Treasury's are testing the 5% level again.

 

 

 

The CDN$, trading in the 1.0475 range at the beginning of the week, spiked back up yesterday and tested 1.0650 earlier this morning.

 



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