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Daily Market Commentary

The Bank of Canada surprised most of the street yesterday with its Bank Rate cut. It is an obvious sign that the Bank sees a significant threat to trade and our economy from the credit crunch which is now spreading its tentacles around the Globe. It is refreshing that the Bak is getting ahead of the curve and is obviously comfortable with the inflation outlook.

 

 Its action had the desired effect on the Loonie which lost altitude immediately, falling to the 98 cent US level; that level is where the Bank believes that our currency should average.

 

 Next up in the market's headlights is the market moving employment numbers on Friday. Consensus is calling for a 70,000 gain in US non-farm payrolls and just 8,000 for Canada. This morning's release of the ADP employment was an eye-opener with it coming in at 159 versus the consensus of 50. This sparked a rally in the US dollar. This number has overstated employment growth before but this is too big to ignore. At 10:00 am we will see the ISM non-manufacturing survey and it could provide more evidence of a slowing economy.

 

 All of this comes ahead of next week's FOMC meeting. With the Bank of England poised to lower its rate tomorrow, the street's focus will be on a cut of 25 or 50 beeps. Certainly, the Discount Rate should be cut by 50. Unfortunately these lower rates just produce a new level of rates where banks will not lend

 



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