Recap: Week Ending January 9, 2015

January 11, 2015

Equity markets closed the first full trading week of 2015 on a negative note as investors and traders began to enter positions for the new year. The S&P 500 was the weakest out of the major US indexes, sliding 0.65% lower on the week. On the other hand, the tech heavily NASDAQ 100 which contains such companies as Apple and Amazon was the strongest of the US indexes closing down 0.4% on the week. North American oil markets did not fair well, seeing large losses with the North American benchmark falling $4.6 last week to make new lows. The levels, which crude is currently trading at, have not yet been seen in over five years. The weak oil market put a damper on the Toronto Stock Exchange Composite Index, also known as the TSX, which fell 2.5% on the week making it one of the weaker global indexes.

Last week was a busy week on the US and Canadian economic calendars with the release of both the Federal Reserves FOMC minutes as well as the unemployment rate in both countries. The minutes were released on Wednesday. Monday and Tuesday of last week saw a strong presence of sellers in the market as the Dow Jones Industrial Average had one of its weakest days it has seen in months on Monday. The minutes showed no new information; however, there were a few new notions worth bring to the attention of investors. Through the statement, committee members made it clear that they were concerned about foreign economic and financial developments. The members noted concern regarding the negative effects of weak oil on foreign countries, however, believe that these impacts are outweighed for the time being by the positive effects of lower gas prices in the US and the positive labour market. The statement also went on to say that they feel that the decline seen in inflation is temporary. This somewhat dovish news regarding interest rates set a bid into the market, causing the Dow to rally more than 1% on the day.

The other major market moving economic data that was released last week was the unemployment rates in both Canada and the United States. The unemployment rate in Canada remained unchanged for the month of December, coming in at 6.6%. 6.6% was also the expected consensus reading. The lack of movement in the rate comes as the labour force participation rate ticked lower from 66% to 65.9%, a negative sign for the economy. The American unemployment picture remains a lot stronger, with the reading coming in at 5.6% vs. the previous reading of 5.8% and a consensus of 5.7%. Like the Canadian labour force participation rate, the US’s rate also shrank from the previous reading of 62.9% to 62.7%. As the labor force shrinks, it indicates that many have quit looking for new jobs and are not officially unemployed and out of the job market. The beat in the unemployment rate did not sit well with US markets with the Dow closing down 0.95%. The TSX faired much better only closing Friday down -0.5% on the day. The negative reaction to the news comes as the notion that a beat in the unemployment rate will cause rates to rise sooner than later, putting a halt on the recent multi-year rally to new highs.

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