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Daily Market Commentary

The ECB kept rates unchanged this morning at 4% citing both risks of slowing economy and inflation.  The release had a bearish tone, as they mentioned growth is slowing while workers are demanding higher salaries to compensate for a higher cost of living.  We would guess that workers will soon be thankful that they have jobs, rather than demanding raises if the slowing in the economy continues.  As we've mentioned before, simply put - it's hard to fire people.  Growth will slow significantly before employment gets cut.  Should Europe decouple from the US in terms of direction of their economy, this may not pan out, but as long as the economy is slowing, the inflation pressures will eventually fall.



A powerful end of day rally yesterday pushed bonds lower at the end of the day, and this morning as all overseas equity markets are trading lower, the bonds have seen a small bid.



Canada's Building Permits printed horribly this morning, dropping 10% since October.  Call this seasonal, as projects typically slow over the winter into the December holidays, but we are starting to worry that the depth of the US housing pain is starting to spill over the border.  Just as our market was overzealous and peaked and troughed to much greater extremes in the late 80's and early 90's, it appears that the US market will now show both extremes - however this doesn't make our market immune.  The deep pain in the US market will be felt here as well, to a lesser extent.  We have ourselves to thanks for that at this point (unless you have a negative amortizing mortgage on your house, then I'm not talking to you).  As affordability did not overshoot to the same extent (most in Toronto might argue), lowering mortgage rates will have a much greater effect here to cushion prices.  Not so in the US... lowering your highly levered mortgage from 9% to 8.5% isn't gonna do much good in that environment

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