Recap: Week Ending September 4, 2015

September 4, 2015

Equity markets across the globe finished in the red last week as weakness in Chinese markets continues to drag down equities. To the surprise of many the S&P 500 closed the week down the most in the US, falling 3.40% to settle the week out at 1,921.24. Usually when markets fall, the NASDAQ 100 is the one which loses the most; however, last week this was not the case as the NASDAQ 100 lost 3.34%. This shift in momentum among indexes could be a sign of greater market weakness internally. On the other hand, the Dow Jones Industrial Average was the strongest performing US index, closing lower by 3.25% last week to settle Friday at 16,101.54. Even though weakness was seen in Shanghai, the Tokyo Nikkie tumbled the most last week, settling down 1,344 points or down 7.02%. This is one of the first weeks where Japanese stocks have led the way to the downside with selling happening in other Asian markets. Such action could be significant as a new wave of selling on the Nikkie could send shockwaves of selling across the globe and into North American equities like what happened in China. Despite such extreme downside action in markets, gold continues to sell off, losing $11.20 or 0.99% last week. The high degree of correlation between gold and other risk-on assets has become worrisome to investors as gold is usually an asset that investors go to during times of uncertainty. If investors are not buying gold what are they putting their money into?

 

One of the most anticipated economic releases this month was the August unemployment rate. This figure for August was released Friday, which in turn led to a dive lower for equities in the US and Canada. The American unemployment rate beat expectations of 5.2% and a previous reading of 5.3%, coming in at 5.1%. The move lower in the US rate sent markets pushing down as a lower unemployment rate will give the United States Federal Reserve more reason to increase interest rates. There have been a lot of talks recently in regards to an interest rate hike this month; however, those talks have been recently overshadowed by extreme market volatility as a result of action in China. With this being said, the unemployment rate for August may be the key to an interest rate hike, it appears that the markets believed this as well settling well into the red on Friday. It must be noted that the US labour force participation rate did not change in August, holding steady at 62.6%. With this being said, the average hourly earnings did increase on a month over month basis, beating the consensus and previous reading of 0.2% coming in at 0.3%. Higher average hourly earnings are a signal of inflation, giving the Federal Reserve even more backing in regards to an interest rate increase. With this being said, the unemployment picture did not come in as rosy in the month of August as many were hoping it would in Canada. The Canadian unemployment rate came in at 7%. The Canadian reading was worse than the consensus and previous reading of 6.8%. The unemployment rate was not the only thing to take a hit in August. The labour productivity for Q2 on a QoQ basis came in at -0.6%, worse than the previous reading of -0.5%, however, in line with the consensus of -0.6%. The move higher in the Canadian unemployment rate sent the TSX sharply lower on Friday as the Canadian economy continues to look weaker and weaker. It was officially declared last week the Canada is in a recession as six months of declining growth have occurred. Many are blaming the so-called recession on the lower price of oil which is severely hurting the Canadian economy that is heavily backed by energy and commodity products. If the low price of oil is to blame for the poor performance of the Canadian economy, the recession could last much longer as economists continue to lower their expectations for the price of oil.

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