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Daily Market Commentary

Canadian CPI was out this morning, the headline number printing slightly higher than expected, while the core was somewhat softer.  This news, however, is relatively inconsequential in the context of the huge credit news out of the EMU this morning.  The ECB injected half a trillion (US$ equiv) of liquidity into the market today.  Yes, that was a T as in trillion.  Short term lending rates dropped precipitously on this news, but still remain elevated in comparison to the central bank overnight target lending rates.  This is where the worry comes in.  The central banks can lower rates all they want, but unless the savings are "passed down the line" from the primary big bank borrowers, it will have little effect.  Regardless, this massive liquidity injection and subsequent downward pressure on the Euribor, in addition to positive earnings out of Goldman will serve as a positive for the equity markets, and will surely temper yesterday's enthusiasm in the long end of the bond market.


  The notes out of the ECB were interesting as well.  They essentially said that they would provide unlimited funds to the market as long as they were needed.  Once again, we are hoping the funds get to where they are needed.


Canadian Leading Indicators came in unchanged on the month.  Last month was also revised lower to unchanged.  This is not a positive development for the Canadian market, and the yield curve is steepening in response.


  US housing starts were also out this morning.  While they weren't materially weaker than last month's print, they are still at historically low levels not seen since 1992 (when they were on their way back up).  Once again, don't expect a V-shaped recovery in the housing market.  This one will take time to unwind as it was past the stage where simply lowering rates would re-invigorate the market.  Lenders have to come back to the market for this to happen.  We expect this to take time.






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