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Daily Market Commentary

The Bank of England and the ECB both kept their benchmark interest rates unchanged early this morning.  Euro dollar bonds rose as traders bet that they would still have to cut rates later on in the year.  The ECB in particular has remained very hawkish despite some of the data pointing to a weaker economy, they have held fast and refused to cut rates in the face of stubborn inflation numbers.

  The BoE also is worried about inflation.  As expected, they left the rate unchanged at 5%, despite a very weak housing market.

After yesterday's almost inexplicable drop in equities, the MarkIt IG10 credit index saw a jump, making credit cheaper relative to government bonds.  This index has been in steady decline since early April, meaning corporates have been outperforming government bonds.

Canada Housing Starts were weaker than expected, but remained relatively firm compared to our neighbours down south.  213,000 new starts for April was lower than March's 243k.  See the chart in the snapshot and on the BlackBlog.  While the bond market is slightly positive, the reaction to the number has been muted.  There has been little volatility in the market lately, as the data has been coming in mostly as expected (and the world is not falling apart anymore).  Loonies, while rising and falling sharply within their range, have stayed in the "just below par" range for some time now.

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