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Daily Market Commentary

Bonds were mixed yesterday, starting the day lower but recovering towards the end of the session.  A weak Leading indicators report in the US and crummy Philadelphia Fed helped fuel a comeback.  Interestingly, the bonds did not rally strongly despite the leading indicators being in the red zone for the third time in 6 reported months this year (see chart in FI snapshot).  Add these to the downtrend in US reported inflation, and it provides a pretty solid case for lower rates in the future.  While Bernanke and the Fed continue to stress that their primary concern is inflation, the reality is that they only have two concerns.  Inflation and the economy (and employment as an extension and main concern of economy).  Since the latter is on solid footing by all accounts, that really only leaves the Fed to fuss over inflation.  Whether or not the reported numbers are accurate is another issue, but the reported core CPI is well under control in the US despite a rapidly declining dollar.


  Some weak earnings reports (outlined above) are adding a little fuel to the treasury market, stoking fears that the part of the equation the Fed ISN'T worried about is weaker than they believe it is.



CAD$ is a little weaker this morning without any data to drive it.  Because I can't put it into better words myself, I will borrow from my colleague Jon Gencher at BMO for a short but sweet state of the market:


"At the moment, it is probably fair to say that with the current market sentiment, the market only looks for reasons to sell the USD and buy the other majors. That said, with the USD seemingly having all the "bad news" priced in and the rest of the majors priced for "good news", selling the big dollar at the moment may be more like chasing pennies."


  Although the CAD$ isn't considered a major, I believe the same applies.  The recent strength has been running on pure momentum and US$ weakness, and you've gotta wonder how long that can last.


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