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Daily Market Commentary

The Federal Reserve has just announced they will add AAA rated asset backed securities to the list of allowable collateral for its Term Auction Facility.  These moves have been a big help in relieving liquidity related pressures in the financial sector.  Much more so than just cutting rates, which winds up only helping those with good collateral.  They are also expanding the size of the facility by 50%, essentially pouring money into the economy.

The Fed is allowing more and more securities at the window, where previously only Treasuries and Agency paper were allowed.  Pretty soon I will write an IOU on a Post-It note to secure a loan at the discount window.

Merrill Lynch issued $300 million in new 3 year CAD$ bonds @ 312 bps over the Canadas (5.80% coupon).  These came at a huge discount to market, and the issue sold well, immediately trading 20 bps more expensive in the secondary market.  Issuing at such a discount seems par for the course recently, but keep in mind, this will cost ML $1.8 million over the next 3 years to ensure a quick sale of their debt rather than issuing where the market indicates they should be.  Since all the financials have been doing this (in the neighbourhood of 10-25 bps cheaper than market rates), it represents quite a bit of extra cost of capital for the sector.

The heavily anticipated US Payrolls are out this morning.  While we advise watching the trend and not the month-by-month numbers, we will nonetheless pay close attention.  The number surprised well to the "upside".  That meaning that the economy lost 20,000 jobs when the consensus guess was a loss of 75,000.

Treasuries are getting absolutely slammed on that release.  2 years rose 12 basis points on the release and are now bouncing around 2.50%.

Once again, while the knee-jerk reaction to the number is hugely positive, we will exercise caution.  One number does not a trend make.  Take a look at the nonfarm payrolls chart in the Daily FI Snapshot.


Today's Headlines


April's jobs drop just 20,000


Nortel loss widens to $138-million

Agrium profit grows and grows

Credit crunch handcuffs banks, Carney says

Global stocks at 3 1/2 month high

Canfor deeper in the red

Thailand floats idea of rice cartel

Cut wages and build smaller plants, Stronach tells Detroit 3

Dundee Bank 'a mistake,' Goodman concedes

Timminco options timely

Gold prices inch higher

U.S. cleans air, Canada blows smoke

FT: Miners and insurers lift FTSE

Oil and gold claw back some losses

Banks lead Europe higher

Triple A prices are out of sync

FT: Fixed income traders pulled into deleveraging vortex

FT: Short View: Brazil and Mexico

US Daily View: Exxon

Marketwtch: Final bets on payrolls placed

Marketwatch: Gas-tax moratorium
a really stupid idea

Marketwatch: Google-Yahoo ad deal may be near

$40 billion burning a hole in his pocket

US Continuing Jobless Claims:

George Orwell

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