Recap: Week Ending July 11, 2014

July 11, 2014

Markets across the globe closed down for the week as US interest rate news as well as new European concerns rocked the market. Canadian markets were also moved by worse than expected economic news. The week started off with worse than expected Canadian Ivey Purchasing Mangers Index, which came in at 46.9, lower than the consensus of 52.5 and the prior reading of 48.2. The negative result is significant because it did not only perform worse than last month; it also did not improve from the prior month which economists were expecting. Despite the key miss, the Toronto Stock Exchange did not react in much negative fashion closing almost flat on the day. Both Monday and Tuesday were quiet for US stocks with a loss on Tuesday almost eliminating most of the gains seen in Monday’s session. Monday the Dow Jones Industrial Average and the S&P 500 made and closed at all time highs. Little economic news of market importance was released Tuesday in both Canada and the US. Volatility struck the markets Wednesday when the US Federal Reserve Minutes were released from their prior meeting. Like prior minute releases no serious tones were set by the board of Fed members. It appears the members are still cautious about the economy and fear that any statement regarding interest rates may spook the market. The Fed appears to be taking their time, making sure that they can be certain that inflation is at the levels which it is necessary to raise rates. Annette Beacher, Head of Asia-Pacific Research at TD Securities, stated that “But even though there will most likely be some vague discussion around the need to eventually remove stimulus, the Fed has not had a long enough string of positive data to consider removing stimulus in 2014.” Even though the future of interest rates may be unclear at the moment, the end of the bond buying program known as Quantitative Easing is in sight. Rob Carnell of ING was quoted Thursday saying, “There was also a further discussion on the ending of QE, which puts to rest the question of whether the Fed’s $10bn per meeting taper would finish with a $15bn reduction in QE in October or leave a final $5bn taper for December. The minutes state a clear preference for the $15bn October option.” Markets rallied on the unclear news of interest rates as it appear the wait for higher rates may be longer than anticipated. The rally was short-lived as news out of Portugal regarding bank defaults took center stage Thursday. US and Canadian markets sold off Thursday, however, the bulk of the selling was seen in Europe where Banque Privee Espirito Santo SA stated that there they would make delayed payments on short-term debt securities which they issued. Banque Privee Espirito Santo SA is owned by Espirito Santo Financial Group SA and represents the second largest bank in Portugal by market value. This news is unsettling for many investors as it appeared that the credit crisis in European was slowly being solved. It appears that the credit market in Europe is not as far along as many previously thought. It will be important to see if Privee Espirito Santo SA will be able to make the delayed payments on time.

The Markets closed Friday with disappointing news about the job situation in Canada. Instead of coming unchanged from the prior months reading at 7% which economists were expecting, the Canadian economy lost jobs with the unemployed rate increasing to 7.1%. The lackluster performance in Canada comes as the US economy is creating jobs at a steady, sustainable pace. The poor number had little effect on the TSX where it actually closed Friday up 11 points. The largest moves were seen in the USD/CAD where USD rallied nearly a cent on the poor economic figure. June is the third month in a row where either jobs have been lost or were not created in Canada.

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