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Financial Markets weekly newsletter

Posted on: December 22, 2016

The stats sheet

  • 3 mos CDOR – .929 bps
  • 2 year GOC bonds - 0.83%
  • 5 year GOC bonds - 1.22%
  • 10 year GOC bonds –1.82%
  • 3 mos US libor - .996
  • 5 yr Treasuries - 2.04%
  • 10 yr Treasuries - 2.55%
  • USD/CAD – 1.3465
  • EUR/CAD – 1.4115
  • CAD/JPY - 87.20
  • GBP/CAD – 1.6600

Canadian News

"This author believes that the BOC would like to see the cost of debt rise, but at a steady and manageable pace. In a world of bears, they are hoping goldilocks will show up”. That is what we wrote just 6 days ago. Today’s data certainly fits the goldilocks picture. Great retail sales and lower than expected inflation. Not something to rally bonds upon but not something to add to selling. Let’s see if tomorrow’s GDP numbers fit the picture too, but for now things look “just right.”

What likely doesn’t feel just right to the BOC is the lack of inflation pass through that we are seeing with the weak loonie. Adding that to the lack of export growth pick up that we’ve experienced and we are left with a head-scratcher. Right now, what difference does the value of our dollar actually make to anyone but tourists and snowbirds?

We go in to the end of the year with a guarded optimism here on the desk. We will watch the data in the early part of 2017, but as things stand, we feel that, ceteris paribus (especially stateside), the market is underestimating the possibility of a Canadian rate hike next year. We will expand on our reasoning in early 2017.

US News

It's been a quiet week for data and volatility, with yields in a fairly tight range. One might suggest that those savvy investors that have been short the US fixed income market have taken their profit and sat back for the holidays. Lucky them. Certainly, momentum has waned considerably. But there is little retracement, suggesting that there arent that many shorts to squeeze, and that there is little appetite to go long. After all, catching falling knives generally ends badly.

We suspect that the downward momentum will continue (data permitting), in early January, as we await the Trump inauguration and more detailed confirmation of first actions and plans. There is the possibilty of “sell the rumour, buy the fact” -as the early details don’t measure up – but try not to get too cute. The paradigm has shifted here, folks. This will be an era of fiscal leverage, not monetary. The government will drive the bus, not the central bank. In fact, one suspects that the Fed will be more than happy for this rotation. There is only so much a central bank can really control and the era of “superhero” central bankers that save economies and guide them to safety with monetary policy needs to be over in North America. A normalized curve with higher yields gives money some intrinsic investment value, and is not a bad outcome. In the right circumstances, in the right moderation, it is actually the desired end game. We suspect the Fed feels likewise.

This President will spend to promote growth in good times without concerns for inflation, and spend out of any downturn to create/stabilize growth and employment –that’s his attraction- and that’s a terrible recipe for bonds.

We at Financial Markets remain, as ever, All In.

Mark Johnson
Director, Financial Markets-Interest Rate Sales



Most Recent Market Updates

November 20, 2017

Natural gas gains 4.4 cents

NYMEX natural gas climbed 4.4 cents higher on Friday.

November 20, 2017

Crude gained $1.41

Crude prompt futures gained $1.41 on Friday to close the day at $56.55.

November 17, 2017

Natural gas falls 2.7 cents

NYMEX natural gas continued it’s decent on Thursday.

November 17, 2017

Crude prices slide $0.19

Crude prompt futures traded in a 69 cent range.

November 17, 2017

USDCAD range bound as Canadian CPI uneventful

Domestically we saw the biggest release of the week a few minutes ago.

November 14, 2017

Natural gas loses 5 cents

Cold weather emerged over the long weekend in the US Midwest to East as anticipated.


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