Recap: Week Ending May 31
After a shortened week due to the US memorial holiday, North American equity markets traded horizontally. The chop like trade with no real direction associated with it followed the testimony of Chairman Ben Bernanke in the preceding week. It appears that the markets have taken a step back and are still digesting the Chairman’s remarks on the economy. The significance of Friday’s close shows that the bears are making some headway against the bulls as both the Dow Jones and S&P 500 close on new week lows. This occurred as the Dow plunged over 100 points in the final minutes of trade. In recent times, the last occurrence of this was the day prior to the fiscal cliff, when traders did not want to hold throughout the possibility of damaging news. Is there a possibility of bad economic news on the horizon for US markets? Asian markets appear to have topped with the Nikkei falling rapidly over the past two weeks. This has only put a strain on the US’s push higher. The push lower in the Nikkei comes only as the Yen gains a small amount of strength to the upside. If such a small amount of strength from the Yen pushes the Nikkei down over 4% in a week, the possibility for larger downside is huge. European equity markets also look as though they might also be going through a cooling period. This past week we saw the DAX and FTSE trade in a horizontal chop changing to a downside trend as they make fresh multi year highs. All of this is occurring as gold continues to chop around at the $1375 level with little conviction in either direction. In part, the lack of direction in the North American markets can be due to the shortened week which brought on a lack of key economic data. With this being said, one of the more important figures seen this past week, Reuters Consumer Sentiment Index, increased rapidly from its prior reading of 76.4 to 84.5 on Friday. Despite this key figure increasing showing positive signs for the economy, US markets closed lower.
In Canada, Mark Carney has concluded his position as Governor of the Bank of Canada. As one of his final decisions, this past week, he kept Canada’s interests at their current level of 1%. Carney, who has been governor of the Bank of Canada since 2008, is leaving to take on the role of the governor of the Bank of England. Mr. Carney will assume this role July 1, 2013. Many feel strongly that Carney is of greater importance at the UK deals with the EU’s financial disaster. Carney has taken credit for making Canada one of the strongest countries through one of the worst financial distastes since the great depression.
Fundamental signs of the Canadian economy cooling are coming to light as some of the big 5 banks reported earnings last week. Earnings were nothing special at Scotia Bank, TD, as well as Bank of Montreal which slightly missed estimates. While RBC met estimates. Both CICB and National Bank were able to beat estimates. The banks blamed disappointing results on low interest rates cutting into their profits. Despite this, profits continue to increase slowly. It is likely that as the US economy improves, Canadian financial institutions should see larger profits.