Recap: Week Ending January 10, 2014

January 12, 2014

Markets closed mixed for the first full week of the 2014 calendar year. US markets continue to move sideways as the outlook on the economy remains somewhat unstable. Friday the US released its monthly unemployment rate, seeing an addition of 74,000 jobs for the month of December vs the consensus reading of 197,000. Despite the poor reading, the US unemployment rate fell 30 basis points from 7% to 6.7%. From the outside, this does not appear to make sense. The monthly unemployment figure fell despite the poor job creation. Unemployment fell due to the fact that many unemployed workers have decided to stop looking for work. Those who are unemployed and have stopped looking for work are known as discouraged workers and are no longer a part of the labor force. As more and more workers become discouraged, the unemployment rate will fall. In this case, the falling rate truly hides the fact that there is somewhat of an employment issue in the United States. Under normal market conditions, a selloff would have most likely have occurred, however, this was not the case. Despite selling off when the news was released, most US equity indices caught a bid midday and closed higher on the day. The close higher comes after the idea that the taper, which occurred last month, may not continue or be reduced. Taper is the slowing of the current pace of the US Federal Reserves bond buying program known as Quantitative Easing, QE. The reversal of the taper would show that the US economy is not in the state which the Federal Reserve believes it to, however, may continue to give equities a boost. Some economists are blaming the poor weather conditions in December on the poor unemployment rate. Economists believe that the cold weather and snow kept many indoors at home not searching for new employment. If such is the case, the unemployment rate for January will be worthwhile when those who did not search for employment last month search for it this month. The news of the unemployment situation was positive for bonds as they rallied to close near their highs for the day. The 10 year US yield dropped .10% to 2.86%. On the flip side, gold caught a nice bid to close up 1.4% on the day with the idea that the inflation, or money printing, created by QE will continue longer than expected.

The unemployment picture was no better in Canada, where the economy actually lost 46,000 jobs for the month of December. The 2013 calendar year was the worst year for Canadian job creation since 2009. The largest losses were seen in Ontario where 39,000 jobs were lost, and Alberta where 12,000 jobs were lost. British Columbia was one of the stronger job creators, making 13,000 new positions followed by Newfoundland and Labrador which created 1,900 new jobs. Some of the hardest hit sectors were those related to education services, which lost 19,000 jobs and those in social organizations, which lost 15,000. The sector which created the most jobs in December was the health care and social assistance which added 22,000 jobs across the country. Despite the poor report, the Toronto Stock Exchange Index, TSX, rallied as gold caught bid. With this being said, the Canadian dollar continues to fall against the US Greenback as the outlook for the Canadian economy looks bleaker. Currently 1USD is ebullient to 1.08 CAD. This is considered good for exporters as the Canadian dollar is cheaper relative to others, however, this can hinder and importing businesses.

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