Recap: Week Ending May 1, 2015

May 3, 2015

Equity markets traded lower last week as they continued their sideways chop pattern which has played out for the past few months. The NASDAQ 100 index led the charge lower closing the week down 1.27%. The Dow Jones Industrial Average faired much better, only falling 0.31% last week. The market appears to have a lack of direction as economic news continues to remain unstable and statements from the US Federal Reserve remain fairly unclear. The chop style trade is not just limited to equities. After a big push higher earlier in the week, gold was unable to hold bid levels and settled the week down $2.70 or 0.23%. The Toronto Stock Exchange Composite Index, TSX, also closed the week lower, falling 0.44%. Over the course of the past three weeks, the Canadian benchmark index has traded in a narrow range at its 2015 year highs. It appears the prior resistance made earlier in the year has now become support for the index which is sitting just over 2.5% above its 50-day simple moving average.

On Wednesday of last week, the US Federal Reserve came out and stated that they would leave their key interest rate targeted between 0 and 0.25%. The decision to leave the rate unchanged was expected by economists. The decision and following statements had little effects on equities. With this being said, the US Dollar Index was able to break below a lower support level which it had established for the past few weeks. Last week the USD Index fell 1.65 points or 1.7%, making it one of the largest range extensions which the index has seen in weeks. The move higher in rates would see the US currency move higher as investors and savers would seek a higher return on their deposits. Like the US currency, the market for US Treasuries moved lower. A move higher in rates would send the price of US bonds lower. Last week the 30 year long US bond saw its largest weekly decline in years with prices falling $4.96 or 3.07%. The move lower in prices sent the yield moving higher. On Friday, the yield closed the week off at 2.87%. From the move lower in the price of bonds, it can be understood that the market perceived the statement as that of more hawkish than dovish.

One of the most anticipated figures for the upcoming month of May is the US Unemployment rate for the month of April which will be released this upcoming Friday. A positive unemployment figure could send markets lower as it would indicate a strengthening US employment picture, which would lead to a hike in interest rates. An unchanged reading would allow markets to continue in their current sideways pattern. If the figure fails to meet expectations a bid could enter the market as investors and traders believe that the Fed will not raising rates for the foreseeable future as the state of the labour market will not be able to support higher rates. Many key players have been waiting for this reading on the US labour market as it is one of the first ones where the entire country would have seen favorable weather conditions. Recent poor performance in labour market statistics has been blamed on poor weather. Bad weather hinders employers from hiring more workers and workers being able to access employers looking to hire. The ideology will be proven right or wrong this week.

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