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Brief note: Canadian Futures say 50 bps cut in interest rates!

Title says it all.  Six months ago the market priced a small rise in interest rates (25bps) in early 2012.  A month ago this had shifted to no increase in interest rate for the next year, Monday the futures market was saying a 25bps drop in interest rates.  This morning:  50bps drop in rate is on the card by the end of 2011!

Granted this is the "today" market perception, yet the reality is that worldwide economic conditions appear to be heading south. China has 6.5% inflation rate (the authority there said that 5.1% was way too high a few months ago... so 6.5% is probably not too good either).  For some reason, the same guys who think that the U.S. government cannot find its Ass with two hands, thinks that the Chinese can engineer a soft landing, while I am certain that the Chinese can engineer a statistical soft landing (after all they control the whole show) the reality may be otherwise.

Europe has discovered that the "Can that has been kicked down the road" is now too heavy to kick further, rumors of "broken foot" in the form of a European bank failure -- or downgrading of France -- is spooking the entire market.  Continental equity markets are off by more than 25% since their 52 week high (Italy is down 35%).

Canada an export orientated nation (2/3 to US, 10% to China and the rest goes to Europe) that sells raw material is facing "challenges" that may require lower interest rates -- especially as inflation pressures seems to be coming off rather quickly.

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