Recap: Week Ending September 5, 2014

September 5, 2014

Equity markets traded in a narrow sideways pattern as markets closed slightly up to end the first trading week of September. This past week may well have been considered a continuation of summer trading as it was a shorted with markets being closed Monday for Labor Day both in Canada and the United States. The lack of movement in either direction comes as some very important economic figures were announced last week. The highlights on the economic calendar last week included the unemployment rate in both Canada and the United States as well as an interest rate decision from the European Central Bank.

The most upside activity was seen in the Dow Jones, which led markets higher while the NASDAQ was weighted down by Apple. Last week Apple’s iCloud was hacked exposing weaknesses in what was thought to be a safe and reliable service for Apple users. Samsung, Apples largest competitor, also released a series of new mobile devices increasing the expectations for the upcoming release of Apples new mobile devices this week. Tuesday Apple will host a press conference where it is expected that CEO Tim Cook will release two new iPhones as well as a mobile watch. Currently, Apple represents one of the largest proportions on the NASDAQ 100, giving it the ability to swing the index in its direction with little force, this occurred later in the week.

Like equity indexes in the US, the Toronto Stock Exchange Composite Index, TSX, traded in a narrow range but closed slightly lower on the week. The TSX still looks strong as it continues to chop around yearly highs. With this being said, the Moving Average Convergence Divergence indicator, also known as MACD, is showing a bearish cross, indicating that downside activity may be on the horizon. The last time the TSX saw a bearish cross in the MACD the index fell over 2.5% before rebounding and making new multi-year highs.

The most important economic news out this week was the interest rate decision by the European Central Bank, ECB. The EBC cut interest rates from 0.15% to 0.05%. The rate decrease surprised economists who were expecting no change. The move lower in rates comes as the Euro Zone’s economy struggles to get inflation going. On the announcement, European equities caught a bid as the possibly of lower interest rates indicated an ease of borrowing, in turn, leading to higher demand for equities. The ECB appears to be slowly entering a US style Quantitative Easing program. On the other hand, the US is nearing the end of its QE program with a rate hike expected within the next year.

Friday saw the release of both the unemployment rate for the month of August in both Canada and the US. The Canadian rate came in unchanged from the prior reading of 7%. Economists were not expecting a change from the prior reading of 7%. The TSX barely reacted to the news, trading in one of its narrowest ranges for the week. On the other hand, the US rate decreased from the prior reading of 6.2% to 6.1%. Economists were correct again, expecting a decrease to 6.1% in the US. Unlike the TSX, US markets caught a slight bid on the figure and climbed higher with the Dow closing the day up 67 points for a gain of 0.4%. Both the labor force in Canada and the US shrunk by a tenth of a percent decreasing to 62.8% in the US and 66% in Canada.

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