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Daily Market Commentary

Despite a lack of any inflation in Canada, bonds are trading lower this morning.  Canadian CPI came in at -0.2% for the month, which has the annual print coming in at 2.2% headline and 1.4% core.


Despite almost $100 oil and rising food prices worldwide, the CPI continues to trend downward in Canada.  The Loonie is trading lower in response to this number against most currencies.  Flip over to the opposite side of the world and the Reserve Bank of Australia is singing a distinctly different tune.  They warned once again of inflation pressures and threatened to accelerate the pace of rate hikes down under.  The A$ is flying on these comments, up over 2.5 cents vs. the CAD$ in the last two sessions.


  Most of the drop in bonds this morning will be as equities are well bid despite some more negative new out of the financials.  The market seems content to ignore the latest bad financial news



  As we gear up to earnings time for the banks again, BMO has hit the tape and pre-warned that they will be taking another hit to their bottom line.  We won't dwell on this as Scott and Brad Smith will have the topic well covered, but we will follow the credit spreads on BMO debt very closely as an indicator of what the market thinks.  Currently, the 2015 tier 2 BMO subordinated debt is being offered 30 basis points cheaper than it was on Friday.  This is no small move.  Friday's level of 180 basis point over Canada bonds (5.45%) has dropped to about 5.75%.  Stay tuned for more analysis of yield spreads.  Once again we will note, as the banks' earnings parade starts, we won't be buyers in the sector until we see some improvement in the credit markets.


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