Market Commentary

October 13, 2011

After several days of pushing higher, yields are coming back down today as the markets adopt a more cautious tone. After a string of better than expected numbers, economic data released today in the US – Initial and Continuing Jobless Claims as well as the Trade Balance – is simply meeting expectations, and corporate earnings season (kicked off this week) has been lackluster so far. This morning, worse than expected earnings at JPMorgan have influence a negative tone in the market.

Additionally, while there have not been any significant setbacks in terms of the developing European plan to bolster its banking system, there has not been a lot of progress either.

Data tomorrow includes US Retail Sales, Consumer Sentiment, and Business Inventories. For Canada, it is limited to Manufacturing Shipments.

by First National Financial LP 13. October 2011 09:46

October 6, 2011

The bond market has continued selling off this morning as several reasons for optimism have recently emerged. In Europe, the epicenter of most of the recent problems, the ECB has reinitiated a program of providing loans of up to one year to member banks, in addition to resuming the purchase of covered bonds. Both measures combined improve the resiliency of the European banking system.

Additionally, Initial and Continuing Jobless Claims for last week in the US were stronger than expected (building on yesterday’s ‘beat’ in ADP Payrolls), while in Canada, the Ivey PMI for September was also stronger than expected.

Friday morning is important for Canadian data. The US releases the Employment Report for September, along with Wholesale Trade and Consumer Credit numbers for August, while Canada also releases its Employment Report for September.

by First National Financial LP 6. October 2011 09:16

July 12, 2011

The bond market has followed Friday’s sharp rally with further rallies on Monday and through this morning, although the rally has faded since early am today.


The primary culprit is ‘Europe’ – not only did politicians actually start talking about a formal Greek default openly this past weekend, but Italian bond yields have been rising as the debt contagion enters a very dangerous stage. Italy’s economy is as large as Greece, Portugal, Ireland, and Spain put together so the mere thought of a crisis there has caused markets to take a more defensive approach. Italy’s parliament has proactively engaged in budget talks aimed at eliminating that country’s deficit by 2014.


In addition to the European sovereign issues, the US  continues to deliberate on a budgetary package that will get the number of votes necessary in Congress to raise the debt ceiling before the government runs out of the ability to borrow further during the first week of August. Republicans, who raised the debt ceiling some seven times under George Bush, are opposed to any tax increases, while Democrats are opposed to cutting spending on social programs such as medicare and social security.


Expect these global issues to dominate markets over the coming weeks. In terms of hard data we can watch for, the US is releasing Retail Sales and Business Inventories on Thursday, and the Consumer Price Index, Empire State Manufacturing Index, Capacity Utilization, Industrial Production, and Consumer Sentiment (all Friday). Canada releases Manufacturing Shipments on Friday.

by First National Financial LP 12. July 2011 09:59

June 29, 2011

Rates have moved much higher over the past 24 hours. The bond market sold off steadily on Tuesday as the continuing efforts in Europe to stave off a Greek default appear to be bearing fruit. Positive progress in debating a package combining spending cuts and tax increases yesterday will be voted on later today. As the Greek dilemma had been a primary cause of rates declining so much over the past month or so, it is not surprising that a positive near-term resolution should unwind some of that activity.


Adding fuel to the selloff this morning was a surprisingly strong May inflation report for Canada. The market had expected YoY inflation of 3.3% but got 3.7%. The Core inflation reading, which excludes volatile food and energy components (and is the one the Bank of Canada bases rate decisions on), was up 1.8% Year over Year (exp. +1.5%), and 0.5% Month over Month (exp. +0.2%). This 1.8% YoY reading for Core Inflation is below the 2.0% the Bank of Canada is targeting, so there is still a bit of room but obviously less so than the market thought yesterday.


Some important data out Thursday includes Canadian GDP growth for April, and the Chicago PMI.

by First National Financial LP 29. June 2011 09:39

May 12, 2011

The bond market rallied throughout yesterday and into this morning, and we are essentially back to where we were on Tuesday morning. In yesterday’s commentary I indicated that there hadn’t been an identifiable reason for the selloff but throughout the day on Wednesday the market was reminded that Europe’s sovereign debt problems have (still) not been dealt with adequately, China’s accumulation of commodities seems to be slowing, and our friends down south appear to be headed toward an embarrassing standoff over the terms and conditions associated with the need to raise the legal limit for Federal debt in the US. Unfortunately, Republicans and Democrats appear to be miles apart and the clock is ticking.


In terms of data released this morning, a slew of US numbers were generally in line with expectations: Initial Jobless Claims, Continuing Jobless Claims, Producer Price Index, and Advance Retail Sales were all close to what the market predicted. For Canada, the New Housing Price Index was a tad weaker than expected.


US CPI and Consumer Sentiment are the big releases for Friday.

by First National Financial LP 12. May 2011 08:59

April 14, 2011

The bond market has rallied sharply this morning. There was a big miss in the weekly US Initial Jobless Claims print: 412k vs. the expected 380k. This number had only recently dipped below 400k and was a large driver behind the rhetoric that the US labour market is finally on the mend so this uptick is seen as a big disappointment.


In Canada, Manufacturing Sales Growth for February was also weak at -1.5% (-0.5% exp.).


Topping off the reasons for the swift return of risk aversion to the markets are renewed concerns in Europe over peripheral EU countries’ ability to repay debts. The (shocking) discovery that austere government budgets will not stimulate the economic activity necessary to repay national debts has led German Finance Minister Wolfgang Schaeuble to state that Greece may need to ‘renegotiate’ its debt burden if an audit in June questions its ability to pay creditors. Greek 5-year yields are almost 15% and Portuguese 5yr yields are north of 10%.


There is a busy end to the week on Friday with US data including: Consumer Price Index, Industrial Production & Capacity Utilization, and Consumer Sentiment.

by First National Financial LP 14. April 2011 10:09

December 6, 2010

There is a bit of bond market rally taking place this morning due largely to two factors: 1. Bernanke conceding in an interview that it is possible the Fed could engage in Quantitative Easing Part III, and 2. Divergent political views in Europe related to the handling of sovereign debt concerns which are once again undermining confidence there.

Data is really light today in Canada: Building Permits declined in October by -6.5% which was slightly worse than what was expected. Also, the Ivey PMI for November will be released at 10am.

by First National Financial LP 6. December 2010 10:02

Deecmber 2, 2010

The bond market is continuing to sell off this morning as the recent wave of optimism continues. Qualitatively, a lot of the improvement appears to be the result of steadying nerves in Europe as the investment community seems to be accepting the merits of the various support mechanisms that have been put in place.

Positive data, however, is somewhat limited on the day. Pending Home Sales in the US were up 10.4% MoM in October (exp. -1.0%), a rather large ‘beat’, while the recent positive momentum with respect to employment was tempered somewhat this morning as Initial Jobless Claims for last week rose again to 436k, also above what was expected.

Tomorrow is a very big data day in both the US and Canada. For Canada, we will see Employment numbers for November, while in the US we will get the Employment Report, Factory Orders, and the ISM Non-Manufacturing Composite.

A good part of the recent market sell-off has been due to improving US data including weekly jobless claims and yesterday’s ADP Employment Report. All eyes will be on the US Payrolls number for validation of the direction of labour market being signaled by recent data. Expectations are for +145k.

by First National Financial LP 2. December 2010 10:08

November 26, 2010

The bond market has rallied decently this morning as attention has refocused on Euro-zone worries: Primarily Ireland, but the state of Spanish finances is increasingly coming to the fore as well. Enough so, it seems, that there have been discussions within Europe of increasing their EUR440bn portion of a EUR750bn bailout fund, but such an increase appears to be off the table for the time being.

With respect to the Irish situation, not only is there a bailout fund in the works, but also a voluntary restructuring of bank debt in that country.  Whereas the concerns in Greece were limited to the fiscal imbalances of its federal government (as is also the case in Ireland), Ireland also has large banking sector with strong linkages across Europe making the potential fallout from this situation that much greater.

In other feel good news, North Korea seems to be keen on doing its part to further increase military tensions with its neighbours, going so far as to draw very sharp criticism from traditional ally China.

There is no hard data out until next week. On Monday and Tuesday look for:

Canada: Current Account, Industrial Products / Raw Materials Price Indices (Mon), Q3 & September GDP (Tue)

US: S&P/Case-Shiller Home Price Index, Chicago PMI, Consumer Confidence (Tue)

by First National Financial LP 26. November 2010 09:06

September 30, 2010

As you are aware, markets have behaved very cautiously for some time now as the staying power of the recovery remains in question, and more specifically, debt problems in Europe have been making a comeback after their summer holiday. In particular, the Irish government will be taking a majority stake in Allied Irish Bank as it recapitalizes, and of course most of us will have seen some media coverage of union protests against austerity measures throughout Europe this week.


Closer to home, we learned that Canadian GDP contracted 0.1% in July, which was in line with expectations and driven by broad based weakness.


South of the border, the estimate of Q2 GDP growth – initially reported at +1.6% - was revised higher to +1.7%. Additionally, Initial Jobless Claims remained stubbornly high but managed to come in a bit better than expected.


The data continues to provide mixed signals which tends to make rates highly unpredictable.

by First National Financial LP 30. September 2010 14:47