Recap: Week Ending April 1, 2016

April 2, 2016

Equities moved higher last week as reality set in that the rise in US interest rates will be very gradual. Last week the NASDAQ 100 index led the way higher, climbing 2.87% before settling the week on Friday at 2.87%. As it still stands, the NASDAQ is the only index out of the big three, NASDAQ, Dow Jones and S&P 500, which is currently still negative on the year. Furthering this point, the TSX, which has been beaten down by a weak price of oil, is also positive on the year. Last week the upward momentum came from a speech which Janet Yellen made at the Economic Club of New York. Despite this not being from an official Federal Reserve press meeting her comments are still very applicable to the market and economy. Some of the key quotes from her speech are as follows, “Global developments have increased the risks associated with that outlook. In light of these considerations, the Committee decided to leave the stance of policy unchanged in both January and March.” Additionally, Yellen stated, “Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy. This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.” This very dovish tone from the Chairwomen sent positive vibes throughout the equity complex as markets moved higher on Tuesday speech with the Dow Jones gaining 0.69% on the day. While money was flowing into equities, it was flowing out of the US Dollar as the US Dollar Index saw large losses after Yellen’s speech. On the week as a whole, the Dollar Index was down 1.62%. The loss in the Dollar was overshadowed by gains in the Treasury complex. Last week the 10 Year US Treasury Note rallied $1.15 or 0.89% in price to have one of its best weeks in a long time. Bond prices rallied as the notion that inflation is not occurring strongly signalled by the lack of action on the part of the Federal Reserve. One of the key economic indicators which the Fed is dependent on is that of the monthly unemployment rate. The unemployment rate for the month of March was released on Friday indicating a tick higher from the previous reading of 4.9% in February to 5% in March. The move higher was unexpected by economists who were predicting an unchanged reading. Equities caught a bid despite the move higher in unemployment based on the notion that the Fed would be forced to delay any rate increases until we see stabilization in unemployment.

Despite a very weak energy complex, the Toronto Stock Exchange Composite Index or TSX moved higher last week. For the week, the TSX gained 82 points or 0.62% before closing the week out at 13,440. The TSX remains dormant below its 200 day as well as 200 week simple moving average. This indicator has acted as a very strong level of resistance for the Canadian equity benchmark index. With this being said, the TSX was able to hold up well last week despite a poor performance on the behalf of crude. Last week crude fell by almost $3, settling the week down $2.96 or 7.48% at $36.63. The move lower last week marks the second straight weekly loss for the energy product, something which has not been seen since early February. The move lower in crude comes as members of the Saudi royal family stated that they would not be willing to make any production costs until an agreement would be made with other major producers including that of Iran. Going forward one will have to watch any news out of the Middle East as it appears that currently that is the driver of the direction in crude.

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