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Market Commentary

The Fed came in as expected with a 25 bp cut yesterday, but the surprise to me was in the statement.  It sounded hawkish.  The Fed was basically leaving themselves room to do anything at the next meeting, but the overall the tone is that they are done for now.  Surprisingly, gold and equities staged an impressive rally after the statement.  With some participants looking for continued cuts to buoy equities, and rate cuts (and a weak US dollar) spurring the price of Gold, it was surprising to see the strength of these markets after the Fed said they are done cutting.


  Bonds reacted predictably, selling off on the news that cuts are probably done.  The bond market had been expecting more cuts, especially as measured by the BAX futures and the Fed Funds futures.  This is not to say they aren't done.  Further data will dictate that, but for now, they are comfortable.


  This morning, more benign inflation data came out in the PCE.  The core, at 1.8% is in the Fed's comfort range.  Personal Income and spending came in-line.  Overall, the PCE news is good, but the bid to the bond market this morning is coming off of the earnings news out of Credit Suisse and the rumours surrounding a big write down coming to Citigroup.  The storm certainly isn't done with the financials.  If you spend too much time looking at housing and financials, as we generally do being in the centre of that business, you'd think the situation is much worse than it might be.  We still worry that financials can easily leak out to the rest of the economy, as credit and liquidity pretty much rules all sectors, but for the time being it appears contained.


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