Recap: Week Ending June 27, 2014

June 27, 2014

Equity markets closed mixed this week following a lack of volatility across the board. Despite a busy economic calendar in the US, equity markets continue to trade in some of the narrowest ranges we have seen in months. The lack of volatility comes at the CBOE’s VIX, the volatility index; hit new lows for the 2014 year. The lack of movement in markets comes at stocks are at or near their all time highs. Thursday the markets were rocked by news from US Federal Reserve St. Louis Chairman James Bullard noting that interest rates may rise quicker than expected. Bullard went on to say that rates could rise as early as next March. This appears to be the unspoken reality that no investor wants to admit. The news from the branch Chairman comes as the United Kingdoms’ chief central banker Mark Carney stated that rates will rise sooner than later. A rise in rates may put a damper on the current upside seen in many asset classes. Lower rates mean that investors are able to borrow at cheaper prices, leading to more lending that in turn leads to larger buying of various securities. When rates do indeed rise many investors who borrowed on “cheap money” might be forced to sell their securities to cover the cost of rising rates, leading to a sell off. It appears that the UK will be the first to experience rising rates as their economy is said to be much stronger than the United States. Currently, rates have been targeted at the same level since the 2008 crash with the intention of increasing spending. The other major news out this week was Wednesday’s GDP for the first quarter in the US. The annualized previous reading was 2.6%; a consensus of economists were expecting a decrease to -1.7%; however, the reading came in much lower at -2.9%. One must remember that the first quarter in the US saw the decrease of many key economic indicators. Many blame the poor weather on the lack of results; however, their entire US was not affected by the cold weather. The weather excuse only goes so far as many are seen these days buying more and more products from online retailers such as Amazon and not brick and mortar stores. Those shopping online can do so from the comfort of their homes and do not have to venture outdoor in the extreme cold, making an excuse for a lack of shoppers due to the inclement weather difficult to believe.

Little economic news came from Canadian markets, with the only figure being released Friday, which was the Industrial Product Price month over month for the month of May as well as the Raw Material Price Index also for the month of May. Industrial Product Price came in at -0.5% with a prior reading of -0.2% and a consensus of 0%. The Raw Materials Price Index also came in worse than expected at -0.4%, down from a previous reading of 0.1% and a consensus of -0.1%. The Toronto Stock Exchange Index, TSX, saw its first down week in three as energies take a hit. In recent weeks oil spiked higher as the threat of civil unrest near refineries in Iraq posed possible stoppages in production. This provided a nice bid for the TSX, which many of its constituents are energy based companies and benefit from higher prices of the natural resource they extract.

The upcoming week appears to be relatively quiet on the economic calendar with the largest release out of Canada coming Monday when the GDP month over month for April is released. The previous reading came in at a gain of 0.1%; there has yet to be a consensus. This upcoming week is also a holiday week for both Canadian and US markets. Markets in Canada will be closed Tuesday for Canada Day and markets in the US will be closed Friday for Independence Day. With the amount of closures, market activity this week is expected to be muted.

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