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Daily Market Commentary

Canadian CPI was released early this morning, and the data was very light.  A monthly drop of -0.3% led to a headline year over year figure of just 2.4% (the market was expecting 2.8%).  The core dropped in a 1.8%, both well below last month's report and market expectations.  Our strong dollar can claim most of the credit for these numbers.  The price of gasoline (believe it or not) has really remained in check thanks to the strong loonie. 
    This has let the loonie fall this morning, although it is still stronger than last night's close.  The Bank of Canada has been given leeway here to cut overnight interest rates as is sees fit to help the economy, and the recent weakness in the CAD$ is reflecting that.  The two year Canada bonds, however, are where the real action has been in playing the Bank of Canada's rate bias.  Having traded around 4.10% as recently as two weeks ago, we are now seeing 2's trade around 3.65%  (chart of this in daily Fixed Income snapshot)
  Yesterday NAHB housing market index, a survey of home builders, came in a rock bottom levels.  Housing builders have not seen a market this bad since the survey has been in existence.  As US housing starts come out this morning, we will see if those surveys continue to be justified.  We've said before, and continue to say, that there are no V shaped recoveries in the housing markets.  Consumers are still stretched, the term of the excess credit that was granted during the subprime party still has not reached its peak, and we are worried that foreclosures will continue to rise, credit to consumers will continue to get tighter and house prices, in the US, have not seen their bottoms



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