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Daily Market Commentary

Strange day yesterday in the bond market.


We got a bearish print on the Canadian economy in the form of Leading indicators.  This followed along with Friday's horrible Int'l merchandise trade numbers.  These were the first two back to back bearish numbers we've seen out of Canada for some time.  However, the short end of the market barely budged on the day, and the long end rallied a touch.  We would have expected the short end to rally more as the realization comes that Canada is along for the ride should the US slip into recession.  Far too much emphasis is placed on oil exports from Canada.  The truth is they are still a relatively small part of the picture.  Other resources (like forestry into a flat lining housing sector) and manufacturing exports from Ontario and Quebec are far bigger pieces of the pie.


This morning, Canada's manufacturing shipments dropped for the second straight month, and last month was revised further downward.  This is problematic, but not surprising given the light print on merchandise trade.


US CPI came in as expected, the reaction in the bond and currency markets has been muted.  Bernanke spoke yesterday and announced that the Fed would start to forecast headline inflation.  Interesting, but inconsequential as it means they are basically looking at food and oil prices, something they have little control over without drastic policy measures that would be harmful to the economy.


The much hyped Perimeter "solution" to ABCP was all that.  Hype.  With no more information in the marketplace about this crap, it is unlikely that the market will be able to sort out a price.  Rumours of 0.50 bid and 0.95 asks on the board yesterday showed that.  I can't confirm those because I didn't even log in to check.  Perimeter essentially was providing a forum for holders to panic, and nobody did.  If the goal was to get some ink for CBID and Perimeter, then it was a complete success.  I'd guess that holders of ABCP are seeing better outs than losing half their money, and I'm tipping a lot of ink will be spilled and trees will be killed in thousands of pages of legal text before we see the end of this one.


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