Recap: Week Ending June 6, 2014

June 6, 2014

This past week was one of the busiest weeks on the economic calendar which global markets have seen in what feels like months. Economic news came from across the world, with the predominant news coming from outside the US. Tuesday was a big day for the European Union, EU, where the Consumer Price Index ticked lower to 0.5% from the previous reading of 0.7%. 0.7% also happened to be the analyst consensus. The EU also released their unemployment figure for member nations for the month of April. The Figure also ticked lower to 11.7% from the previous reading of 11.8% that also was the analyst consensus. Wednesday was a big day in Canada with the Bank of Canada, BoC, announcing that it will keep its target rate at 1% until the next interest rate decision in about a months time. The following day, Thursday, the Bank of England, BoE announced that like the BoC it will keep rates unchanged. Currently, the short term lending rate for British Pounds is targeted at 0.5% by the BoE. The largest market moving news on the week was an interest rate decision by the European Central Bank, ECB. Unlike announcements from other central banks earlier in the week, the ECB decided to reduce its current rate of 0.25% to 0.15%. The push lower in rates is an attempt by one of the most powerful central banks in the world to stimunate the European economy. As we saw from unemployment figures released earlier in the week, the unemployment rate in the EU region is stubbornly high and has been at these high levels for the course of the past few years. Lower rates are also targeting the possible lack of inflation seen in the Euro. The most recent example of this is the lackluster performance of the EU Consumer Price Index this past week. It will be necessary to watch the effectiveness on the reduction in rates to determine the true strength/weakness of the European economy. To close the week off both Canada and the US Governments reported unemployment for the month of May. Despite analyst expectations of 6.4%, the US unemployment rate came in unchanged at 6.3%. With this being said, nonfarm payrolls did decrease from the previous moths reading of 282K to 217K. 217K is inline with analyst expectations of 218K. Unlike the US figures, the Canadian unemployment rate ticked up 0.10% from 6.9% in the month of April to Mays reading of 7%. The move up in unemployment is worse than analyst expectations with the consensus coming in at 6.9%. The labor force participation rate did not move for the month of May and remains at 66.1%.

On top of the busy economic calender, US equity indices hit new all time highs in both the Dow Jones Industrial Average and the Standard and Poor’s 500, S&P. Like in previous weeks the push to the upside was felt strongest in Tech and the Russell Small Cap 2000 Index. With these indexes moving in unison to the upside, the potential for higher highers is not out of the question. The move higher seems to have no roof making many wonder if there will ever be a tipping point. Once everyone is buying, which appears to be happening now the market will go higher, however, this will only be temporary until the amount of buyers dries up. Like its US counterparts, the Toronto Stock Exchange Composite Index, TSX, pushed higher this week to make new yearly highs. Tthe TSX is currently on a 6 day run to the upside.

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