Recap: Week Ending November 21, 2014

November 23, 2014

Markets climbed higher once again last week following a late week rally in equities. The biggest gainer on the week was the S&P 500 which rose 1.16%. The NASDAQ 100, which was the biggest gainer in previous weeks, lagged behind only gaining 0.62%. The close for both the S&P and Dow were at all time highs once again. The Toronto Stock Exchange Composite Index was able to move higher once again last week, closing up 1.81%. Crude provided a good push to the Canadian benchmark equity index, closing up 1.04%. Since June of this year American crude has fallen almost 30% as supply continues to trump market demand, leading to many to say deflation may be a problem in today’s economy. The march higher last week comes as the economic calendar was relatively light in the United States. The main news out last week was from the leader of the European Central Bank, Mario Draghi.

Last week ECB President Mario Draghi spoke both Friday and Monday with Friday having the largest effect on markets both in North America and Europe. Draghi announced that the ECB is prepared to inject another round of stimulus into the European economy. This comes on the heals of talks of low inflation in the Euro region. Draghi is quoted saying, “do what we must to raise inflation and inflation expectations as fast as possible.” The leader of the ECB went on to say, “we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.” The news out of the ECB is the opposite of what the United States Federal Reserve is doing in the wake of ending their monetary bond-buying policy known as quantitative easing. Markets around the globe spiked on the statement made by Draghi as it hinted at a decline in interest rates for one of the world’s most heavily traded currency, the Euro. The biggest gainer on the week was the German DAX, which rallied 5.18% on the week. Throughout the course of the year Germany has been seen as the strongest economy in the Eurozone, it appears that the buying can be attributed to the fact that not as many countries will rely on it for further help as was possible before. The news also sent US markets higher on the day. Gold did not show much of a reaction to the announcement closing up 0.63% Friday. The high made in gold Friday was at its 50 day moving average which is considered an area of strong resistance. On previous announcements of monetary policy gold in the US gold has shown a strong bid. This was not the case following the news out of the ECB. The big loser on the day was the Euro, which tumbled 1.29% Friday to close around the lows for the year. Currently, the Euro is testing levels which it has not seen since August of 2012. With the sell-off in the Euro, the US Dollar Index caught a strong bid and closed up 0.76% Friday. As monetary policy begins in Euro and more aggressive policies enter the Japanese market, the USD dollar has been performing very well as of late. The close Friday was one of the highest the index has ever seen. So far for the 2014 year the Dollar Index is up almost 10%, making it one of the largest directional moves it has ever seen. Commonly the index has a negative correlation with US stocks, however, after the increased global economic policies; such is not the case with both stocks and the dollar on all-time highs.

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