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Daily Market Commentary

Yesterday's CAD$ action saw aggressive selling of the loonie across the board.  On days where risk is being avoided, we are still seeing the same pattern of stronger US$ and stronger Yen.  The market perceives greenbacks to be a relatively safe currency despite the tremendous drop lately.  As for Yen, any time there is a whiff of large scale unwinding of carry trades, traders jump in and scoop up Yen.  Yesterday this was to the tune of 4 Yen vs. CAD and 3 vs. the Euro.  We've mentioned this previously, but the volatility in the currency markets has been on the uptick lately.  The chart in the snapshot shows daily absolute changes in the CAD$ and the moving average.  What historically has been an average of 0.0025 daily change has ballooned to almost a penny.


All this is to say that the currency situation is abnormal, and while it looks like volatility will persist in the short term, expect it to revert towards the mean as more orderly markets prevail.



  We would have expected bonds to be trading higher given yesterday's very ugly close in the equity markets.  Wal-Mart is providing some relief in the consumer sector having reported strong sales and earnings, however we see this cheapest drug that the addicted US consumer can afford, and it's their last stop before they are forced to go cold turkey on spending and lock themselves down in their negative equity homes.  With 10 yr treasuries trading at 4.23% and the 2 yrs at 3.45%, the treasury markets have certainly priced in a significant slowdown from the Fed Funds rate of 4.50%.  The question is, how much more can come?  It's truly the testing hour for the bond markets.  Any lower yields would seem to imply more than the soft landing that most are predicting.



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