Recap: Week Ending July 4, 2014

July 4, 2014

Equities across the board closed the week higher with the Dow Jones Industrial Average closing above the 17,000 level for the first time in its history. The S&P500 also made and closed at all time highs. Currently, the S&P has gained just under 8% for the 2014 year while the Dow is up roughly 3.5%. The new milestones come as a shortened trading week was in effect in both Canadian and US markets with markets in Canada being closed Tuesday for Canada Day and Thursday afternoon and Friday in the US because of Independence Day. The lack of trading days did not hamper any potential upside. Like its American counterparts, the Toronto Stock Exchange Index, TSX, climbed higher once again this week. The move higher is into levels that have not been seen since the previous recession.

This week saw the announcement of key economic figures including the US monthly jobs report for June. The unemployment figure is usually released Fridays, however, due to the shortened week the monthly report was released Thursday morning. Unemployment for the month of May came in at 6.3%, economists did not expect a change. With this being said, June’s figures beat expectations coming in lower at 6.1%. The beat comes as the Labor Force Participation Rate remains unchanged at 62.8%, and the Average Hourly Earnings increased at the same pace as May at 0.2%. On top of this, the Nonfarm Payrolls beat expectations of 212k and a prior reading of 224K coming in at 288K. With the release of all this stable and positive economic data many are starting to realize that the economy may be on much stronger legs than previously thought. Markets rallied on the news, however, not as much as one would expect. The Dow shot up 90 points on the day. The lack of reaction to a very positive number indicates that the market may be getting weak and no longer can attract the amount of buyers as it was able to at lower levels. The little movement could also be attributed to a fear an economy improving quicker than expected, leading to a sooner than later rise in interest rates. Current interest rates are targeted to trade between 0-0.25%. A rate rise has not been seen since the past recession. On Wednesday, prior to the unemployment report US Federal Reserve Chairwomen Janet Yellen spoke at a news event. The Chairwomen stated that there is no need to change current monetary policy, however she did say “pockets of increased risk-taking.” Yellen went on to further state, “Monetary policy faces significant limitations as a tool to promote financial stability. Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach.” The news from Yellen was taken positively, and markets closed the day slightly higher.

The upcoming week has little economic data out of the US; however, the same cannot be said north of the border with a busy economic calendar for the Canadian economy. Monday Canada will release the Building Permits (MoM) for the month of May with a prior reading of 1.1% and a consensus of 3.8%. Later Monday the Ivey Purchasing Managers Index s.a (Jun) will be released with a consensus of 51.8 and a prior reading of 48.2. Wednesday will see the release of Canadian Housing Starts s.a. (YoY). Economists are expecting a decrease to 191K from the prior reading of 198.3K. Thursday will see the release of the Canadian New Housing Price Index (YoY) (May); the previous reading came in at an increase of 1.6%, there has yet to be consensus expectations released. The week will close out with the Canadian unemployment rate for the month of June. Economists are not expecting a change from the previous reading of 7%.

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