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Daily Market Commentary

Without any notable data this morning, the market is driving on the fuel of rumour.  A Bloomberg News poll of 62 economists was released this morning showing the average estimate of 1.5% GDP growth for the first half of 2008.  While this is sub-par growth, it is still a bet on avoiding recession.  We don't put much stock into these polls as there are similar results from polls heading into 2001.  American economists are generally over-optimistic.  It is notable that such rock stars as Bill Gross and David Rosenberg are already saying we are in a recession, much less that one is coming.  Only 5 economists in the survey called for contraction of the economy.  The most important thing to take from this survey is that the median and average estimate of growth were revised lower.  We are much more interested in the trend of estimate revisions than the estimates themselves.


  The economists also reduced their estimates of consumer spending - which currently represents the biggest chunk of US GDP.  We would note that spending is directly tied to employment, which is a lagging indicator.  Simply put, it's hard to let workers go.  The last couple of prints on employment have been weak, and we'll watch future releases very closely to see if this is a trend.



Bonds are mixed this morning, the yield curve continues to steepen, favouring shorter bonds over longer ones.  This is an action we have long been behind.  Coming off of the pancake-flat curve we had for much of 2006, a steeper curve almost seemed inevitable as expectations of lower BoC and Fed Funds rates were priced into the curve.  While much of this is done, we believe there is still the case for further steepening of the curve.  55 basis points is simply not enough premium to be paid for buying a 30 year bond over the 2 year variety.  See the chart in the Daily FI Snapshot.


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