Recap: Week Ending February 19, 2016

February 22, 2016

Equities around the globe moved higher for the first time in two weeks as selling pressures eased. Like usual, the tech-heavy NASDAQ 100 index led the way higher with a weekly gain of 3.61%. The Dow Jones Industrial Average was the laagered on the week, producing a gain of only 2.62%. The move to the upside occurred with conviction as other major equity markets around the globe pushed higher last week. When markets move in sync with one other, large moves usually occur. Markets rallied as investors found positive economic news out last week in the United States, which indicated a pickup in manufacturing. The recent beat down in the price of oil and the higher values of the US Dollar have hindered manufacturing figures in recent months. With this being said, in January industrial production grew 0.9% with the manufacturing component rising 0.5%. It must be noted that this is the first increase in output since July of 2015. Such release shows that despite weakness abroad, there may still be growth in the US economy. If this is the case, the US market will become highly attractive to global investors who are seeking a return in a highly volatility dynamic marketplace. In addition to bullish economic numbers last week, the US Federal Reserved released their minutes from the January policy meeting. The minutes were perceived as rather dovish. This notion can be as the committee members, “agreed that uncertainty had increased, and many saw these developments as increasing downside risks to the outlook.” These comments out Wednesday sent equity markets soaring as the possibility of zero interest rates became main stage once again. However, the news was not taken as bullishly in the treasury complex as one might have expected. US Treasury yields finished the week with little to no gains or losses. The lack of movement in yields comes as the Treasury market has already seen a huge rally in prices as yields have fallen. The recent move higher in prices occurred as global fears of a slowdown were on of high concern and investors sought a safe return in the United States. As a result, such dovish comments were already well priced into yields.

Like in the United States, the Toronto Stock Exchange Composite Index, or TSX, preformed very well last week, settling the week up 3.49% to close Friday at 12,813. The move higher in the TSX comes as bullish news out of the energy market took center stage in Canada last week. On Tuesday, it was announced that Saudi Arabia, Russia and Venezuela had all agreed to maintain their current levels of output. The news which rocked the market even further was a report on Wednesday that Iran may support such a plan to maintain current levels of output. Because of this, oil climbed higher for the first time in two weeks, settling up $2.94 or 10.13% to close Friday at $31.96. The move higher in the energy complex helped the TSX push higher on a weekly basis. With this being said, a dark cloud was cast over the oil market on Friday as it was reported that US oil inventories had reached new weekly record high prices. It will be important to see if these levels of inventories stay high despite a production freeze from major producers. If inventories do not change despite the freeze, it will be a sign of weak demand, which could very well send fears throughout the global marketplace.

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