Recap: Week Ending July 3, 2015
Equities in the Unites States traded lower for the second week in a row as the Toronto Stock Exchange Composite Index fell after showing strength in the week prior. Last week the Dow Jones Industrial Average was the weakest among the big 3 US indexes, falling 1.21% or 216 points to close Friday at 17,730. On the flip side, the NASDAQ 100 index was the best performing US index, only falling 1.13% or 50 points to close the week at 4,433. In the middle, the S&P 500 fell 1.18% or 24 points to close the week out at 2,076. The in sync move lower in equities was a result of the debt crisis currently occurring in Greece. The leftist Greek government has rejected all support and offers from the ECB and instead called a referendum to see if citizens of Greece support further ECB financial support. The vote is a simple yes or no answer with many possible outcomes if either side wins. A yes vote would signal further support for Greece. A no vote would signal a possible departure of Greece from the Euro currency. It has been noted by the ECB that the results referendum may not be even applicable. Many Greeks are frustrated with the state of the economy and the 20% unemployment rate and believe that a departure from the Euro would be beneficial. A departure from the Euro, or as many call it a Grexit, may result in Greece having their own currency, which could be a problem with the ongoing inflation concerns in that country. No matter the result of the vote, yes or no, volatility will enter global markets.
The Toronto Stock Exchange Composite Index, or TSX, fell 125 points last week or 0.85%. The move lower last week comes as the TSX appeared to catch some legs to the upside in the prior week. It must be noted that the TSX did trade much lower than the close Friday, trading to a low of 14,482, however, closed the week out at 14,682. The low made last week is a new trend low and is lower than the lows seen two weeks ago. The MACD, or Moving Average Convergence Divergence Indicator, is still showing a bearish reading on a weekly basis. It appears that the indicator is weakening; signalling that a larger push to the downside is in the books.
Despite Friday being a US holiday, the monthly unemployment report for the month of June was released. The reading came in at 5.3%, beating a consensus of 5.4% and a previous reading of 5.5%. With this being said, Nonfarm Payrolls did not meet the consensus or the previous reading coming in at 223K. The consensuses result was 230K and the previous reading was 254K. The mixed result with the unexpected weak number in Nonfarm Payrolls appears to have confused the market, with the Dow closing Thursday down 27 points of 0.16%. It has been repeated by the US Federal Reserve over and over again that lower unemployment will signal a rise in interest rates. The unemployment rate has dropped; however, payrolls appear to still be recovering. On a dark note, the Labour Force Participation Rate fell from a previous reading of 62.9% in May to 62.6% in June. The fall in the number signals that the labour force shrunk and fewer people looked for work in June. The shrinking labour force can be a contributing factor to the drop in the unemployment rate.