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Daily Market Commentary

Canada's Employment numbers are in this morning, and for the first time in several months, there was actually a surprise to the downside.  The country reported a loss of 18,700 jobs in December, after creating 42,600 in November.  The surprise for the past several months have been strongly to the upside.  Not this time.  Added to the weakness of the US jobs numbers recently, we now expect rate cuts to come fast and deep.  With the 2 year bond trading @ 3.32%, I see no reason why we wouldn't catch up to the US two year which is at 2.65%.  We will not be insulated from any slowdown in the US, and the Bank of Canada will be forced to cut rates alongside the Fed.



  The real casualty is the Loonie this morning, suffering from the double effect of risk aversion and terrible jobs numbers.  As we've been mentioning for a few weeks now, our bias is for the CAD$ to fall as investors realize rates are heading south here and should a full blown recession develop in the US, the market for our exports will soften considerably.  Asia to the rescue?  Perhaps, but don't think they are insulated from the US economy either.  Even China's trade surplus is starting to cool (albeit from a white hot level - Report from Bloomberg.com here: China's booming trade surplus starts to cool)


as theYuan increases in value and global demand start to stutter.



As your clients get their RSP money deposited, we'd recommend buying 5 year provincial strip bonds at this time.  Rates appear to be heading lower, and depending on how fast these cuts go, it will be a better time to buy now than at the March RSP deadline.  The Bank still appears hesitant to cut, although the Fed appears to have turned a corner yesterday.  The BoC will realize there is no inflation problem in the short term (or at least none that the BoC overnight rate will have any effect over)  and cuts will follow.







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