Recap: Week Ending November 6, 2015

November 9, 2015

Equity markets moved higher for the sixth straight week as the Dow Jones Industrial Average led the way higher. Last week the Dow traded up 1.4% to close Friday at 17,910.33. On the flip side, the S&P 500 was the laggard in the United States, climbing only 0.95%. The move last week puts the S&P back into a range of horizontal chop at record highs which the index trade at for the course of the summer. The main focal point of the week was both the Canadian and American unemployment rate which was released Friday. Both rates came in better than expected, beating previous readings as well as economists’ consensuses. The Canadian rate for the month of October came in at 7% vs. a previous reading of 7.1% which was also the consensus. Last month a total of 44.4K jobs were created in Canada vs. a previous reading of 12.1K and a consensus of 10K. To add more positive news to the already good unemployment rate, the participation rate rose from a previous reading of 65.9% in September to 66% in October, showing that more people are either working or looking for work. Despite the positive report, the Toronto Stock Exchange Composite Index or TSX traded in a tight range Friday, closing the day down 5.48 points or 0.04%. With being said, the TSX did trade higher earlier in the week, trading up to a high of 13,790 before settling Friday at 13,553 for a weekly gain of 24 points or 0.18%. The unemployment rate provided a bit more action in the United Sates where the rate came in at 5% vs. both a previous reading and consensus of 5.1%. Payrolls in the United States also increased by 271,000 causing the unemployment rate to fall to a seven-year low. The labour force participation rate did not change in the month of October from a previous reading of 62.4%. A strong telltale sigh of the labour market is average hourly earnings. For the month of October on a year over year basis average hourly earnings came in at an increase of 2.5% vs. a previous reading of 2.2% in September. The positive report in the United States has signalled too many that interest rates may rise in the United States at the mid-December FOMC meeting. Fed Chair Janet Yellen is quoted telling the House of Financial Services Committee that there is a “live possibility” of an interest rate increase at the next meeting in December. The notion that rates could be moving higher sooner rather than later did not spook the markets as such news already appears to be priced in. In past events when the Fed has stated that an interest rate hike may be nearing equities sold off. With this being said, the bond market did react strongly. The 30 year US Treasury, which the Federal Reserve has the least control over, fell $4.16 or 2.67% in price last week to settle at $151.61. As interest rates start to move higher, the price of bonds priced in USD will fall in value. With this being said, the US Dollar Index, which represents a basket of currencies traded against the USD, moved higher to multi-month highs last week, trading up $2.24 or 2.31% to settle Friday at 99.26. As the United States moves towards higher rates, the USD will move higher as foreign investors and traders move their funds to the US to seek higher returns.

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