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Daily Market Commentary

We are all waiting on the Fed at 2.15pm.  While the market has pretty much dialled in a 25 bp cut, we are waiting for the language.  Dovish - continue cuts, Goldilocks - just right, or Hawkish - inflation is a problem?  It will be scrutinized down to the last word.

Bank of America issued $6 billion in 5 and 10 year bonds late yesterday @ +185 bps and +190 bps to their respective benchmarks.  While still at a discount to market spreads, they certainly weren't giving these bonds away.  We've seen some massive discounts in new issues in order to get the deals done, but these were more in line with the market.

Citigroup also tapped the market for $3 yards last night.  It's an equity issue, so we won't concern ourselves too much, but it is a 22% dilution of their common shares...

Credit has been behaving much better for the past week.  All measures of credit have been gapping inwards this week, with strong demand for all names, including financials.  The chart of the Royal Bank yield over Canada below shows that perhaps credit is on the mend.  There's still a long way to go before we're normalized, but the current direction provides much relief.  One of our favourite trades as well, the Canada Housing Trust issue (which we are long here on the desk) has improved markedly over the week.  Having been as wide as 62 bps over Canadas (for the same Canada guarantee!!) they have narrowed in to 50 bps.

We have long said we won't believe in any equity rally until credit confirms it, and this time we are seeing some of that confirmation.

ADP Employment Change surprised WAY to the upside, showing a gain of 10,000 jobs when a loss of 60,000 was expected.

US GDP came in line with expectations for Q1 (so this data is at least a month old) @ 0.6% annualized. 

Personal Consumption was higher, GDP Price index and Employment Cost Indexes did not give cause for too much concern on the inflation front.

Canadian GDP did not fare as well, coming in at -0.2% for the month, and in line with commodity price strength, the CDN Raw Materials Prices came in at a whopping 6.6% rise for March.

The data will continue to pour in for the rest of the week, so stay tuned.

George Orwell:

The great enemy of clear language is insincerity. When there is a gap between one's real and one's declared aims, one turns, as it were, instinctively to long words and exhausted idioms, like a cuttlefish squirting out ink.


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