Recap: Week Ending January 23, 2015
Markets traded higher last week following a busy economy calendar with many market moving surprises. Last week the NASDAQ 100 Index was the strongest out all the US majors trading up 3.28%. The Toronto Stock Exchange Composite Index had an extremely good week also trading up 3.28%. The Dow Jones Industrial Average was the weakest of the bunch only trading up 0.92% on the week. It must be noted that last week was a shortened week due to Martin Luther King Jr day which saw US markets closed for trading Monday. It appears that the holiday did not dampener any market conviction as a strong bid was still present. US Light Crude fell again last week to close Friday at $45.29. The slide saw the energy product lose $3.62 or 7.4% on the week. The slide in energy prices did not have the usual negative effect on the TSX, which saw one of the largest economic surprises the market has seen in years.
On Wednesday, the Bank of Canada announced that they would be lowering their interest rate from 1% to 0.75%. The move was unexpected amongst economists, sending volatility into the market. The move lower is the first change in many years and comes and the United States is making preparations to raise their target rate. The lower movement in the Canadian benchmark rate solidifies the notion that inflation is not where it should be, and the economy is not on solid footing. The health of Canadian economy in recent months appears to have been overestimated by most despite a stubbornly high unemployment rate and low energy prices. As the news came to market, equities across Canada pointed higher. Lower interest rates mean that companies can borrow more much which they can then invest, creating a larger bid or presence of buyers in the market. This was recently seen in the United States with near zero interest rates causing a strong bid in equities for many years. If interest rates in Canada stay low for some time, the TSX could experience large gains. In fact, it has been heard that if that there is a likely chance that interest rates may fall even further in March. Following the announcement from the Bank of Canada the Canadian Dollar weakened even further against the US Dollar. So far for the 2015 year the Canadian Dollar has fallen over 6% vs. the US Greenback to close Friday at 0.8050.
The other market moving economic release last week came from the European Central Bank, who announced that they would be putting a US style Quantitative Easing bond buying program into effect. The ECB has announced that it will start buying $60 Billion Euros worth of bonds around March of this year and continue until late 2016. Following the announcement the Euro sold off vs. the USD to close at multi-year lows. At the moment, the Euro is currently down over 7% for the 2015 year vs. the US. On the other hand, European equities climbed higher as the notion that more cheap money will be pumped into the market.
With all these countries around the world lowering rates due to lack of inflation and higher unemployment, will the US still continue on their plan to raise rates in the near future?