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Daily Market Commentary

Yesterday's early strength in the CAD$ was surprising, given our lack of inflation in Canada.  The market awoke to this later and started hitting bids for loonies sending them down over a penny on the day.  The Bank of Canada meets on Tuesday, and while there is still a split over whether we get a 25 or 50 bp cut, the data has been allowing the bank to cut more.  Expect 50 bps on Tuesday.



Positive earnings reports are slowly taking the air out of the treasury markets.  From what we argued have been over-inflated levels on "risk-free" Canada and Treasury bonds, we are coming back into what are more reasonable levels.  See the chart of the 2 year treasury in the Snapshot.



Yesterday US Leading Indicators popped their head slightly into positive territory.  Not quite enough for us to be convinced, but at least the data is coming mixed lately.  this week Empire manufacturing was better, CPI moderated, Retail sales held up, while consumer confidence, PPI, housing numbers and the Philadelphia Fed all disappointed.  Believe it or not, but this is an improvement over the universally negative date we've seen for most of 2008.


Canadian Leading Indicators came in line flat at zero.  Once again, this is a slight improvement over last months drop of 0.2%, but hardly worth celebrating.  Canada's wholesale sales numbers was negative and below expectations, however. 



While the Fed has been working tirelessly to save the banking system, it seems that finally the banking system is coming in with a much needed solution of their own.  Several banks, led by Deutsche Bank, are working on setting up a clearing house for Credit Derivative products, much like that for futures and options.  This would limit trading to members which would be required to have strong capital bases and post margin required by a qualified clearing house.  This would take a lot of uncertainty out the huge CDS market by adding regulation.  We applaud the move.



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