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Daily Market Commentary

October 29, 2007

It should be a busy week lined up, starting with a strong Loonie and lots of data to drive the bond and FX markets.  Most importantly Bernanke and the FOMC will be cutting rates on Wednesday... but by how much?  Throw in GDP and employment numbers, as well as PCE and it should be an active week.

 

  Some market participants are betting on 50 bps out of the Fed, but consensus view is 25 bps (as is ours).  The Fed, as we learned at the last meeting, is not as worried about surprising the market as we originally thought, however.  After years of well advertised simple 25 bp hikes, the 25 bp discount window cut and the 50 bps Fed Funds cut at the last meeting were somewhat surprising to the market.  I guess it's ok to surprise the market with good news.  I'd hate to see what happens if that had gone the other way, given how powerful the equity rally was after the last Fed meeting.

 

  Without any news this morning, the bond markets are trading mostly flat in the face of powerful equity rallies in Asia.  CAD$ and AUS$ (the risk currencies) and moving higher again as it seems ok to put on some reflation trades (again).

 

  The news will start in earnest tomorrow, so for this morning, we will continue to trade off of company specific news and overseas markets.

 

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