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Market Commentary

Luckily Fed meetings come on Wednesdays and not Fridays.  Because if we had to take yet another day to say "the market is awaiting the Fed" these comments would get very tired.  Volumes have been extremely light for the week, and it will be nice to get a decision and move on.


Yesterday's anti-inflationary data out of Canada was met with some surprise buying of the CAD$.  The CAD$ bull is so strong right now, good news is bought and bad news is bought.  The drop in Industrial and Raw Materials prices heralds little inflation here, in combination with our core CPI which remains low.  With this, the prospects of rate hikes in Canada (and more importantly the upwards direction of our rates vs the US) have lessened.  This should mean a lower CAD$.  Yesterday afternoon saw some violent selling of US$ after it gained a small bid in the morning, and the loonie once again climbed to its highs, currently north of 1.05 US$ to buy one loon.


  US and Canadian GDP hit the tape this morning.  US was a blowout number at 3.9% for Q3.  Canada's (measured monthly) came in at 0.2%.  Both these numbers are very strong.  The Fed will have made up their mind already on this afternoon's action, but we'd think the prospects of 50 bps pretty much get eliminated on this data.  Also notable is the GDP price index dropping significantly to 0.8% (from last months 2.6%).  The lack of inflation by almost all measures in the US is really giving the Fed the flexibility they need to manoeuvre their way around this slowdown.  As long as certain sectors of the economy hold up (specifically employment) it looks like they should have a lot of wiggle room setting policy to avoid a full blown recession.



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