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Market Commentary

Once again, the employment reports from the US and Canada surprised the pundits, who have a track record about equal to that of the weather forecasters!


 In any event, it further contributed to a basing in the US dollar and the Canadian dollar flirted with parity again. Presaging a slowdown in employment, U.S. consumer sentiment, measured by the Michigan survey, fell last month to a level of 74.5, worse that forecast.


 On the eve of the FOMC rate decision, a report is circulating that indicates that forward inflation expectations may prevent the Fed from lowering the Fed Funds rate by as much as some forecasts,


 We stress that the Fed has embarked on an easing cycle and will continue to ease until the threat of a recession has receded and that credit begins to flow more freely. This is not happening yet as the TED spread remains near the August highs at 230. It is possible that the TED spread will worsen after the Fed cut tomorrow as there are no signs of market counterparties being any more willing to lend to each other.


The market has a 100% consensus of a 25 basis point cut tomorrow with the real possibility of a 50 basis point chop in the Discoint Window to encourage market participants to come forward and borrow.


There are lots of news releases later in the week to point the way including retail sales in the US.


Today, bond prices are flirting with being unchanged and the yield curve, while steep, has stabilized.



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