Recap: Week Ending March 21, 2014

March 23, 2014

After posting large gains in the start of the week, North American equity indexes chopped sideways to close off trading in the green. Friday marked the official expiration of the quarterly equity index futures products. Traders must rollover their positions in the March 2014 contracts to the June 2014 contract to ensure that they do not receive their investment back plus or minus any gains. Friday was also key as it was the monthly equity options expiration date. On this date, option contract holders must liquidate their position in order to not take delivery of the underlying contract. With the combination of these events falling on the same day led to volatile swings in markets. On Friday, the S&P 500 had a 20 point range for the day and closed down 5.49 points or for a loss of 0.29%. Volume in the S&P 500 cash index also came in extremely high at just over 3.7B shares. The 50 day average for the volume in the S&P usually lies around the 2B mark. With all this at play, the S&P still was able to make a new all time high on an intraday basis. A similar situation played out in both the Dow Jones and the NASDAQ 100; however, neither index was able to make new all time intraday highs. On Friday the NASDAQ was the weakest of the bunch, closing down over 1.10% on the day. Unlike the S&P that moved higher after opening, the NASDAQ made a new high on the open and then pushed lower. This push lower in the NASDAQ could be the start of a strong divergent move to the downside. A falling NASDASQ would only lead to the other indexes pushing lower as well. The TSX faired similarly to its US counterparts and closed the week on a higher note. The index has been in a recent horizontal trading channel since the 21st of February. This trading range comes as the TSX pushed higher for days on end at the beginning of February.

After having a difficult couple of weeks, European markets were able to close higher. The push lower in European equities can be attributed to the uprising tension and the Russian take over of the Ukrainian territory of Crimea. It appears that the tensions between the two countries have begun to ease. Many media outlets have been quoted saying that Putin has no intention of taking over any more parts of Ukraine. Many are taking this news with a grain of salt as the Russians have since seized the only submarine owned by the Ukrainian forces; this may be a sign of things to come. With this being said all of Europe is on high alert for any further developments which could put markets in a further tailspin. Canadian Prime Minster Stephen Harper is currently visiting the capital of Ukraine. PM Harper has stated that in the upcoming G8 meeting that he would like to see Russia removed from the list of participating countries. If this occurs, possible retaliations may occur, sending fear throughout the market once again.

The biggest news this week came from the US Federal Reserve at its regular FOMC meeting. At the meeting it was announced the bond buying program known as Quantitative Easing, or QE, will be reduced by another $10B. This reduction in bond buying has come to be known as tapering. Currently, the Fed is buying treasury securities at a monthly rate of $55B. Once the taper is complete and QE has ended, the Fed will raise its target Federal Funds rate which is currently targeting rates between 0% and 0.25%. Janet Yellen was quoted at the recent FOMC press conference saying that a rise in Fed Funds target will likely happen six months following the completion of Quantitative Easing. It has become under the notion that a rise in interest rates may not be as harmful to the economy as previous noted as it signals that the economy can handle higher rates.

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