Daily Market Commentary
January 22, 2008
Having thrown out all comments written before the Fed came in with their emergency rate cut, we'll start again fresh with new commentary.
The Fed has decided it has had enough of being called "behind the curve" and aggressively cut the Fed Funds and the discount rate by 75 bps. They have registered the panic in the markets and come to the rescue. Hopefully this inspires confidence rather than signalling that the Fed is panicked.
Bonds have sold off from this morning's elevated levels, but are still higher on the day, especially in the short end. The yield curve is sharply steeper both in Canada and the US.
While Fed Funds now stands at 3.50%, two year treasuries are still calling for much more, currently yielding 2.08%.
The knee-jerk reaction was positive for equities and negative for bonds, but as the news sink in, we are seeing more of the same. Equity futures are sinking again and Treasuries continue to rally. While the US market has to play catch up with world equities after the sell off yesterday, we do look south for leadership, and the effects pf the emergency cut this morning appear to be fading before the market even opens.
Gold is the big winner out of this, jumping significantly from its lows of the day. Lower rates is always good for gold, and we've seen the jump.
Meanwhile, Canadian retail sales surprised to the upside in Canada. They came in much higher than expected - that's nice and confusing for the Canadian markets going into the Bank of Canada's decision. The data continues to print mostly positive while the US is melting down. We hope the BoC sees what is happening to our biggest trading partner and acts accordingly.
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