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Daily Market Commentary

BoC governor Dodge was all over the tape this morning, commenting on the Canadian economy and capital markets.  His comments boiled down to the current overnight rate being at an appropriate level, given the strength of the economy being greater than his expectations.  He also spoke about the money markets, reiterating that the banks are still well capitalized.  Most interestingly, he mentioned that investors should do their own homework and not really on ratings agencies entirely for their research.  All this language certainly clears up his position.  There will be no cuts in rates in Canada, and they aren't going to bail out those who took risk in the financial markets.


The CAD$ is rallying on top of yesterday's gains following these comments.  Current projection have the US overnight rate below the BoC's by 2008.  The huge increase in imports in Canada (as measured by yesterday balance of trade decline) is a testament to the strength of our dollar and our economy, as imports of finished goods is on fire as we continue to spend.  It seems that the CAD$ would be unstoppable given all these factors, and parity seems inevitable.  The only contrary to that is the huge general consensus that the CAD$ will appreciate and the greenback will continue to depreciate.  While this approach is far less scientific, it has been useful to watch as wholly positive (or negative) consensus has usually heralded opposite action in the markets.



Bonds are gaining this morning as equity futures trade lower, recovering some of the losses from yesterday.  The markets still look overbought at this point, short of another major credit scare or equity puke out, 4.33% and 4.28% on the US and Can ten years respectively seem like lofty levels.... for now.  Should recession fears flare up anew, a three handle on the US ten year isn't out of the question.  It will take some terrible data to get us there though.



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