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Daily Market Commentary

If you haven't heard enough of "are they gonna go 25 or 50?" yet, you only have a couple more hours to get it in.


In the meantime, we've got some heavy numbers and big earnings hitting the tape all week.  US PPI will be released this morning, on top of Lehman's better than expected earnings.  Yesterday's bond market actions accounted for all the big data and announcements coming later in the week.  It was a very slow day which saw the long end creep higher and the yield curve flattened some more.


The Canadian yield curve, which had steepened significantly during the credit crunch of August, has retraced much of its rise.  What is most interesting, is that the original steepening came off the back of an incredible rally in the 2 year bonds (as well as everything shorter, right down to the 1 month T-Bills, which are still very hard to get).  The retracing of the curve from the peak of 30 bps back to the current 4 bps has come from the other end (chart in Daily FI Snapshot).  The Ten year bond has rallied to catch up with the two year.  This doesn't bode well as an indicator of economic health.  While the shorter bonds will act more in response to central bank policy (and anticipation thereof), the longer bonds generally are better predictors of the economy as a whole.  Certainly, with the ten year having rallied to 4.29%, the market is anticipating a benign CPI report tomorrow out of Canada.



CAD$ continue to be strong as the market waits on the Fed.  At this point, 25 bps are generally accepted, should they cut 50 bps, we should see further rallying on the CAD$ as expectation for BoC overnight rates are firmly on hold.



Briefly - US headline PPI was very low, althuogh the core remained sticky.  This gives the Fed some more room to move, as most inflation indicators in the US have a clear downward bias.


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