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Daily Market Commentary

 It was a very interesting day in the markets yesterday, not so much as the bid came to bonds on the back of massive equity selloffs, but the reversal in the middle of the trading day in currencies was nothing short of spectacular.  After breaking into the 0.90's (just north of 1.10 on the indirect), the loonie snapped back hard moving a full TWO pennies from the highs.  It traded lower against all currencies during the afternoon, virtually gapping lower against the greenback.  The CAD$ is moving lower again this morning, although in a more orderly fashion.  This comes as a lot of ink has been spilled about the demise of the US$.  It felt like a capitulation day yesterday, so don't be surprised to see the CAD$ correct back a few pennies.


  One aspect that hasn't been given much play is the reaction of the Canadian economy to the increasing prospects of a US recession.  Our biggest trading partner hitting the skids at the same time as our dollar puts the clamp down on our manufacturing and export sector is a recipe for lower rates in Canada on the back of lower growth.  It would be extremely hard for Canada to decouple itself from the US economic cycle, despite the increasing trade with Asia and other stronger regions in the world.


  In the credit world, the parade of write downs on iffy CDO and subprime debt continues.  It was Morgan Stanley's turn today, taking a relatively light $3.7 bill markdown following Citi and Merrill's.  It's interesting how light the Canadian banks have gotten off so far.  With our own ABCP issue bubbling just below the surface, coupled with some pretty significant US business by our banks, it's hard to believe that they are immune from this write down mess.  Expect more to come along these lines from the Canadian banks.


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