Recap: Week Ending January 22, 2016

January 24, 2016

Equities moved higher last week marking the first weekly gain in the 2016 calendar year. Despite closing the week up, equities sold off earlier in the week down to levels not seen since early 2014. The tech-heavy NASDAQ 100 Index lead the way higher off the weekly lows, closing Friday at 4,259 creating a gain of 2.87%. With this being said, the Dow Jones Industrial Average was not able to move higher at such a pace, closing the week up only 0.66%. Last week was a shortened trading week in the United States with markets being closed on Monday for Martin Luther King Jr. Day. Despite the holiday, markets remained fixed on the volatility in the price of NYMEX crude oil. Last week crude traded down to a low of $27.56 before climbing to make a high of $32.35. The price of crude settled at $32.25, ticks below its weekly high. The fall last week saw crude trade at levels not seen since 2003. One of the big drivers in crude last week was the realization that Iran will begin to export oil following the lifting of sanctions placed on that nation. Iran has threatened to flood an already oversupplied market with even more crude. This is a fair statement. However, it must be noted that Iran may not exactly have the ability to produce at such volumes which it has threatened to. Many analysts have stated that they expect the valves and extraction facilities to be rusted over and possibly inoperable. It is hard to make such statements as nobody knows the current status of many of Iran’s oil facilities; however, one can only believe this to be true as they have not pumped crude in years. Even if Iran can extract crude at the pace which they have stated, it will take some time for it to hit the market. As a result, it appears that the market has overpriced the impact of Iran going online. The future of the price oil now appears to be back to the reality of supply vs. demand with supply hitting record highs and demand falling short of expectations.

 

The movement higher in the energy complex was a welcome sign for the Toronto Stock Exchange Composite Index, or TSX, which saw its first weekly gain in three weeks. Last week the TSX traded higher by 316 points or 2.62% before settling the week out at 12,389. The move in the TSX was also supported by a small bid in the price of gold which has recently been flat lined. Last week gold trade higher by $9.60 or 0.88% to settle Friday at $1,098.20. The move higher in gold appears to be that of a continued push off of the lows made at the end of last year. The other big contributor to the TSX was a higher price for natural gas. Last week saw a rally in the price of the energy product as demanded rose due to cold weather conditions across the east coast. Last week nat gas rallied $0.04 or 1.82% to settle the week at $2.13. With this being said, one of the largest and most anticipated events last week was that from the Bank of Canada or BoC. As expected, the Canadian central bank left its overnight rate unchanged at 0.50% despite pressure from what many are calling the collapse of oil and Canada’s energy sector. With this being said, the BoC did lower its 2016 growth forecast to 1.5% in 2016 and 2.5% in 2017 as they state the decline in commodity prices has set back the Canadian economy. In a statement the bank reiterated its views on evolving inflation, “all things considered; therefore, the risks to the profile for inflation are roughly balanced. Meanwhile, financial vulnerabilities continue to edge higher, as expected.” The decision not to raise rates sent the Canadian dollar higher against its US counterpart. Last week the CAD rallied roughly 2 cents to close the week up 2.91%. This was the first weekly gain for the Canadian currency in almost three weeks. It will be important to watch to see if the CAD goes back to tracking the price of crude oil or if it continues its upward trajectory which it established last week.

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