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Daily Market Commentary

Turmoil continues in the money market, where investors continue to throw logic out the window and sell anything credit related.  National Bank has stepped in promising to make whole on all the ABCP in their money market funds.  In theory, this will tie up a lot of their capital, but not actually cost them much as the underlying assets are still paying.  It is important to not that default rates have not increased in the recent past.  The street is out of bills.  The flight to government issue is so strong US 3 month bills and shorter are trading well below 3%, the 1 month with a 1% handle.  This represents the biggest one week gain in US treasury bills in the last 20 years - a full blown panic, and as a result we are subject offered on all Treasury Bills due to lack of supply.  Bankers Acceptances are still high quality and well offered.



Canadian CPI was released early this morning in line with expectations @ 2.3% for the core.  The Bank of Canada will be relieved to see this number below last months 2.5%, as they are no doubt feeling the pressure to ease due to the liquidity panic.


Canada's Leading Indicators came out slightly stronger than expected @ 0.4%, and last months' was also revised upwards.  Retail sales were very weak however, and prior months' data was revised downwards.  The softness came from Auto and fuel spending, while spending on food climbed.



Remember that all this injection of liquidity through central bank actions now done by the ECB, Fed, BoJ and BoC (in total amounting to somewhere under half a trillion dollars) is hugely inflationary in the longer term.  It may be perceived as a necessary rescue, but remember prolonged easy money through 2002-2004 was what got us into this mess in the first place.  In the shorter term, between the economy looking a little soft and flight to the quality of government issue, don't look for yields to spike higher anytime soon.


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