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Daily Market Commentary

It is employment Friday and, as always, markets are moving. First up was Canada; defying the consensus call for a modest increase of 8,000 jobs, our country added 42,000, 27,000 of which were fulltime jobs. Looking a little deeper, the beleagured manufacturing sector lost another 16,000 positions. The rate itself actually rose despite this solid growth as more new entrants looking for work caused the rate to rise to 5.9%. The Bank of Canada will be looking closely at the 4.2% year over year increase in hourly earnings.


 Next came our southern neighbour, whose economy churned out an increase of 94,000 in non-farm payrolls, close to the consensus of 80,000. As with Canada, most of this increase was in the service sectors with housing related sectors losing jobs again.


Bonds have sagged, putting the US ten year back over 4%. The Canadian dollar is moving closer to parity again after this news and the yield curve is flattening.


There is no change in our view that the Fed will lower rates on Tuesday with the median estimate being 25 beeps in the Funds Rate and 50 in the Discount Rate.


 Noteworthy in the Canadian market is that some credit spreads have begun to narrow, particularly in the Crown corporation and Provincial sectors where spreads widened to silly levels.An example of this is the Canada Housing Trust 4.55% of 2012. These bonds are unconditionally guaranteed by the Government of Canada, not to mention the high quality mortgages that they own and yet their yield spread blew out to over 40 beeps from Canadas. Some common sense is returning and they have tightened to 32 over now versus their normal 10 or so.






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