Recap: Week Ending December 25, 2015

December 28, 2015

Equities traded higher last week on lighter than average volume as the Christmas Holiday took full effect on markets. Exchanges around the world were closed early on Thursday and all day on Friday in celebration of Christmas. As a result, many investors and traders took time off, resulting in less trading volume. With this being said, what many refer to as a Santa rally is in full effect. Last week the S&P 500 index closed higher by 2.76% to settle the week at 2,060.99. The move higher in the index is the first in two weeks and puts the S&P in positive territory on the year. Despite a weaker performance relative to its peers last week closing higher by 2.39%, the NASDAQ 100 index remains in positive territory for the year. The push higher in equities can be contributed to a much more stable price of WTI crude which rallied for the second straight week off of multi-year lows. In recent weeks, equities have found weakness in a struggling price for WTI as the energy product hit 11-year lows. Stocks in the US were also boosted by solid economic data that was released. Last week reports showed a rise in new home sales as well as mortgage applications paired with a continued decline in weekly jobless claims. Such figures support the recent move in interest rates which many remain skeptical will hold as economic data is not improving at a steady rate. On the other hand, the bond market had a relatively quiet week with the 10 Year US Treasury Note trading with a yield of 2.25% on the close Thursday. The 10 Year yield has yet to show any real direction following the most recent interest rate shock in the United States.

 

The Toronto Stock Exchange Composite Index, or TSX, rallied for the second straight week as the price of oil rose once again. On a weekly timeframe, the TSX has developed a 0.66 correlation with the price of WTI and appears to becoming stronger. On a daily timeframe, the correlation is even stronger coming in with a reading of 0.83. With the announcement of little economic data last week the TSX appears to be more dependent on the commodity complex. This notion can be further expanded as the price of gold rallied for the first time in two weeks. Last week the precious metal traded to a high of $1,081.40 before settling $1,075.80 on Thursday to mark a gain of $10.20 or 0.96%. Like crude, the correlation between gold and the TSX is relatively high on the weekly timeframe of 0.61. As commodities are highly linked to the price of the USD, it is important to look at the value of the US currency when contemplating a move in the TSX. Currently, gold has a -0.47 daily correlation with the US Dollar Index. The US Dollar Index is a basket of weighted currencies which trade against the USD and represent the overall strength or weakness of the US currency.

 

Trading volumes are expected to be light once again this week as markets around the world are closed for New Years celebrations. Equities will close at their scheduled times on Thursday but will not reopen until Monday, January 4th. On the other hand, interest rate, as well as fx derivative products, will close at 1 PM on Thursday and remain closed until their regular open on Monday, January 4th.

 

Happy holidays from the GTF team & best of luck in the 2016 year!

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