Major News This Week

Last week’s FOMC meeting raised a ruckus in the markets. Its Chairman, Ben Bernanke, tried to explain as clearly as possible that any change in current monetary policy would depend on future conditions. According to the current economic forecast, this would suggest a gradual tapering of QE3 between now and the end of 2013, with bond purchases ending in 2014. He also confirmed that the key interest rate would remain between 0% and 0.25% as long as the unemployment rate stays above 6.5%. Despite his explanations, bond rates continued to climb, prices for equities plummeted around the world, and the U.S. dollar rose against almost all other currencies. Friday did not bring good news for the loonie, as Retail Sales and inflation figures were disappointing. We recommend that you take advantage of the high volatility and call your trader to place orders. Have a good week.

The Loonie
Markets were shaken last week by a speech from Ben Bernanke, Chairman of the Federal Reserve. He mentioned that the unemployment rate may fall close to 6.5% next year, and this is the Fed’s stated objective for ending its monetary easing measures. This signal is very important, and it was heard: last week saw capital moving out of the bond markets, particularly out of long-term bonds. Lower demand for government bonds provoked a marked increase in returns sought by investors. The following graph shows the yields currently demanded on various terms on the US government debt (the green curve): short-term Treasuries are near zero, while 10-year Treasuries yield 2.50% and 30-year Treasuries yield 3.50%. The yellow curve shows where yields were 12 months ago, underscoring a marked change in long-term yields. The Fed has been using security purchases to keep short-term rates very low, but investors want protection from higher inflation in the longer term.

To Read the Entire Report Please Click on the pdf File Below.