Recap: Week Ending October 2, 2015

October 4, 2015

Equities across the in North America finished the week mixed as gains in the United States did not travel northwards to Canadian markets. Last week the S&P 500 index finished the week up 1.04%, making it the strongest performing index in the United States. On the other hand, the Dow Jones Industrial Average closed the week up 0.97%, making it the weakest of indexes in the US. The Toronto Stock Exchange Composite Index, or TSX, did not fair as well as its US counted parts, closing the week down 0.29% to settle Friday at 13,339.74. The upside action in US markets comes as equities continue to trade in a horizontal range that they have established at trend lows. It must be noted that if it were not for a big push to the upside Friday, US stocks would have closed in the red for the week. The major catalyst for the move Friday was the US unemployment rate for the month of September which came in line with expectations. The reading came in at 5.1%, matching the expectation among economists as well as the previous reading for August. The market did not know how to react at first with index futures selling off before the open. However, once the market did open at 9:30EST equities climbed higher pushing the Dow Jones up 200 points on the day. The large swing in the markets comes as uncertainty regarding an increase in the US increase rate shadows the market. A poor number would be considered bullish for the market as it would delay any rate rise that the Fed may be planning. Even though the unemployment figure came in unchanged, the labour force participation rate shrank from 62.6% to a reading in September of 62.4%. A decline in such a number is representative of fewer people seeking work in the US economy. The unemployment picture did not get any better as average weekly hours fell from a previous reading of 34.6 to 34.5. The surveyed economists expected no change in the reading from August. Even worse was the average hourly earnings for September, which came in much worse than anticipated at a reading of 0%. In August average hourly earnings saw a rise of 0.4% and economists were expected a reading of 0.2%. Such a number is a sign of weak inflation growth. The Fed has noted in the past that inflation and unemployment are two of its major triggers when it comes to raising rates. If inflation remains little or unchanged on a month to month basis, and the unemployment rate has shrunk but appears to have slowed, can the Fed still raise rates. From the most recent figures, it appears that the equities space believes that the Fed will be holding off a rate rise for some time. This attitude was also seen in the fixed income sector where a rise in rates would cause bond prices to fall. The 30 Year US Treasury bond rose 0.66% on Friday to settle the week at 158.08. From this in sync move once can believe that the market may take a directional stance to the upside until the next unemployment release in early November or the next FOMC meeting when the Federal Reserve will announce its decision in regards to interest rates near the end of the month.


Like its US counterparts, the TSX was able to climb higher on Friday; however, the move higher was not large enough to wipe away losses seen earlier in the week. The TSX continues to be on a slide lower, closing down two straight weeks. Last week is rather important as the Canadian benchmark equity index closed below its 200 week simple moving average, an area that has historically acted as past support. As the index trades below this average, an area of value will be established lower and, as a result, the TSX may have a tough time moving back above its 200 week SMA. Even the price of crude could not prop up the TSX, which climbed 0.71% last week to settle at $45.66. Like the TSX, crude is also sitting bellows its 200-week simple moving average.

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