BONDS
Traders in 10-year U.S. Treasuries are not likely to see much volatility during the next few months, unless some kind of economic shock strikes the global economy.
The yield on 10-year U.S. Treasuries could hover around 3.25 per cent and end the year not much different from where it is currently, said John Higgins, senior markets economist with London-based Capital Economics Ltd. The 10-year yield was 3.21 per cent late last week.
Recent consumer price index data put the core inflation rate, which excludes food and energy, at a 44-year low of 0.9 per cent, according to Capital Economics. Factor in the recent drop in energy and overall inflation could plummet to 1 per cent in June from 2 per cent in May and end the year in negative territory, it said.
"While we expect the downward trend in core inflation to resume in coming months, we would be surprised if the 10-year Treasury yield ended the year much different from where it is today," Mr. Higgins said.
While deflationary fears could trigger a drop in the yield, investors will likely remain confident in the outlook because the economy is in considerably better shape than it was 18 months ago when the yield plunged to 2 per cent.
Yields could rise if "investors rediscover their enthusiasm for risk or turn less tolerant of the U.S. fiscal position," he said. But Capital Economics expects the U.S. Federal Reserve Board will not be raising interest rates until 2012.
As a result, there should be a firm lid on yields until later next year, Mr. Higgins said.
CURRENCIES
The Canadian dollar's status as a petro-currency is back - oil prices are rising and the BP spill in the Gulf of Mexico is likely to create renewed interest in oil sands projects.
While those projects could take years to unfold, "the positive foreign-exchange impact of Canada's vast resources could be felt much earlier in the form of renewed foreign interest that could well translate into another round of multibillion merger and acquisition inflows," said Matthew Strauss, a senior currency strategist with RBC Dominion Securities Inc.
The viability of the oil sands projects increases now that many long-term forecasts call for oil to trade at more than $80 (U.S.) a barrel. Oil traded late last week at $77 a barrel.
Currency strategists also expect the loonie's performance will be bolstered by Canada's solid fiscal position and the Bank of Canada's decision to embark on a rate-hiking policy. The Bank of Canada has raised the target overnight bank rate by 0.25 per cent to 0.5 per cent and CIBC World Markets Inc. expects it will increase rates another 75 to 100 basis points in 2010 if commodity and equity markets remain relatively steady. (A basis point is 1/100th of a percentage point).
Currency traders are still estimating the probability of another rate hike in July at over 80 per cent. The widening spread between Canadian and U.S. overnight rates will prove positive for the Canadian dollar over the next six months, said Camilla Sutton, a currency strategist with Scotia Capital Inc.
STOCKS
Caterpillar Inc. plans to spend $700-million (U.S.) by 2014 to develop new hydraulic shovels and enhanced electric drive trucks for the global mining industry, said Ben Cherniavsky, an analyst with Raymond James Ltd.
The decision "speaks to the promising outlook and strong demand expected from the mining end-markets" serviced by two Canadian distributors of Caterpillar equipment, Finning International Inc. and Toromont Industries Ltd., he said.
It also bodes well for the long-term outlook for the mining industry.
One of the big users of the heavy equipment is the Canadian oil sands. "Canada's oil sands will mark a key milestone this year becoming the largest single source of U.S. oil imports, ahead of second-place Mexico," according to a report by CIBC World Markets Inc.
For Caterpillar, the shovel development program marks its entrance into the business and it expects to roll out a full range of hydraulic shovels beginning in late 2011, said Mr. Cherniavsky.
The increased production capacity for its largest mining trucks is expected to start up in 2011. The company also plans to significantly increase the manufacturing capacity for its smaller trucks in 2012.
Finning's businesses in South America and Canada are heavily exposed to copper and oil sands mining end markets, respectively, Mr. Cherniavsky said.