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Daily Market Commentary

The Loonie regained some footing on Friday, showing strength as some risk taking came back to the markets.  This morning, US dollars and Yen are strong all around, and the CAD$ is slightly weaker against all majors.  As realization of lower rates in Canada become more evident, we may see a lower CAD$ to come, as measured in higher yielding currencies like Stirling and Aussie dollars.  Against US$, however, their rates seem to be leading ours lower, making the guesswork of the direction of CAD$ vs. US$ a little more difficult. 

 Bonds this morning are stronger on the back of credit worries being rekindled.  Not only has Goldman brought it up, but Chinese regulators "encouraged" their banks to cool their lending practices in an attempt to cool their white hot economy.  In an attempt to avoid risk, investors have bid two year treasuries down to 3.31% creating a huge gap between the Fed Funds rate and trading instruments.  Fed rhetoric continues to be somewhat hawkish, despite the fact that the market is not agreeing at all.  T-Bill yields have dropped to near their August lows, when they can be found at all. 

 Canada and Treasury yield curves have steepened considerably as the market gets used to the idea of more and deeper cuts to short term rates.  Two year notes have severely outperformed long bonds in recent weeks.

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