Recap: Week Ending March 6, 2015
North American equity markets closed the first full week of trading in March on a lower note as economic figures beat expectations. The S&P 500 was the worst off, closing down 1.58% on the week. The NASDAQ 100 faired much better in comparison, only falling -0.93%. Most commonly, the NASDAQ usually leads the overall market in a directional move, being one of the better performing indexes on the week leads one to wonder that this week is nothing but a small selloff. The Toronto Stock Exchange Composite Index, TSX, did not have a good week at all, falling 1.85%. The fall in Canadian stocks comes as the price for North American Crude, WTI, rose $0.26 last week or 0.53%. WTI did have a rocky week by all accounts, trading up to just shy of $52.40 before settling the week off Friday at $49.78. Last week the spread between the price of Brent and WTI fell $2.65 or 20.93%, indicating that the price of Brent fell more in comparison to WTI. This spread is important because it traded to 0 at the start of 2015 when oil bottomed and then traded all the way up to over $13 as the price recovered. A falling spread indicates that prices are overall falling as these energy products usually trade in high correlation, however one is falling faster than the other.
The most anticipated economic data being released last week was the US unemployment figures on Friday. The number came in much better than the previous of 5.7% and consensus of 5.6% with an actual reading of 5.5%. Despite the beat on the reading, equity markets sold off with the Dow Jones falling 1.54% on Friday alone falling to its 50 day simple moving average. Stocks fell as the notion that an improved unemployment picture would indicate a rise in interest rates sooner rather than later. As US Fed Chairwomen Janet Yellen continues to be rather vague about the Fed’s view, the unemployment rate remains the best indicator of the economies health. The selloff was much more extreme in US Treasury bonds where the 30 year sold off $2.66 or 1.75%. As rates begin to rise slowly, the price of bonds will fall to adjust for the change in interest rates to reflect yields as investors demand higher returns. Another big gainer from the better than expected unemployment report, was the US Dollar Index, which caught a bid and closed Friday up $1.26 or 1.31%. The index has been bid as of recently as investors and savers continue to flock to the USD in search of higher rates that now appears will occur sooner rather than later.
Despite the dramatic drop in the unemployment rate, the Labour Force Participation Rate fell from 62.9% to 62.8% as more and more Americans quit looking for jobs and are considered out of the workforce. Average Hourly Earnings for February on a year over year basis also fell from 2.2% 2%. The fall in hourly earnings backs up the fall in the participation rate, indicating that fewer Americans are looking for work with no excess demand from employers as wages did not rise. It will be interesting to hear the views of the Federal Reserve at their next meeting that is scheduled for March 17 to 18. This meeting investors and market participants may finally hear firm and clear guidance in regards to the Fed’s date to raise interest rates.