Recap: Week Ending February 6, 2015

February 8, 2015

North American stocks rallied last week as the Dow Jones Industrial Average bounced off its 200 day moving average. The move last week saw the Dow climb over 3.8% alongside the Toronto Stock Exchange Composite Index, TSX, which climbed 2.8%. The extreme bid seen in the markets can be related back to numerous events; however, one of the driving factors is the price of crude oil. Last week the price of West Texas Light Crude rallied over 9.3% to close the week out at $52.34. This move to the upside in the price of the North American benchmark oil product is the largest it has seen in months as 2.7 million contracts exchanged hands. The move higher in crude signals a stronger demand for the heavily used industrial energy, which signals a possible increase in production. From its highs made in mid-June of last year, crude fell roughly 60% to $43.58 before bouncing higher this week. The bid in equities can also be related back to the stabilization in the USD dollar, which has seen an extreme push to the upside. Last week the Dollar Index traded down 0.22% to close out at 94.76. The move suggests that investors may be easing their positions in risk off assets and moving towards more risk on assets such as equities. This notion is justified by the fall in the price of the 30 year US Treasury. Last week the futures price for the long bond fell 5.66 or 3.5% to close the week at 156.14. As investors seek to increase risk in the short term, the selloff in both bonds and the US Dollar index could be sustained.

The bounce in the price of oil undoubtedly caused a bid to enter the TSX, which has taken a beating as of late in comparison to its US counterparts. With the bounce in higher oil prices, which is bullish for companies listed on the TSX, as well as a low-interest rate environment, the TSX is set to move higher. Currently, the Canadian benchmark index is trading at the highs made in mid-November; this area will act as a strong resistance zone and will truly test the strength of buyers.

Friday saw the release of some of the most economic data of the month, the unemployment figures for January for both Canada and the United States. Unemployment situation in Canada improved in the month of January; this was seen in a tick down in the unemployment rate from 6.7% to 6.6%. Economists were expecting the rate to remain unchanged. The positive news about the economy followed suit with no change in the labour force participation rate. Currently, the rate is sitting at 65.7%. Economists did not expect a move in this figure. The picture in the United States was not as rosy as unemployment moved higher from 5.6% to 5.7%. This move higher was unexpected by economists. With this taken into consideration, the labour force increased in the month of January, moving higher from 62.7% to 62.9%. Despite their importance, these figures had little effect on the market with the Dow trading in a narrow range Friday closing down 0.34%. A similar picture played out for the TSX, which also traded in a narrow range and closed the day down 0.27%.

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn