Recap: Week Ending April 8, 2016

April 11, 2016

Despite a large rally in crude oil last week equities traded lower. Both the Dow Jones as well as S&P 500 saw a 1.21% drop last week while the NASDAQ 100 fell by 1.26%. The Toronto Stock Exchange Composite Index, or TSX, received a bit of support from the rising price of crude, however, still fell by 0.32% last week. This move slightly lower is a sign that the massive rally which began in February is running out of steam. With regards to the Dow Jones, it must be noted that the index did not trade much higher than where it opened the week for trade. Such actions are a sign of relatively weaker markets. In recent weeks, the market has received a strong bid as dovish statements were made from key members of the US Federal Reserve. Last week markets took a shock when Boston Fed President Eric Rosengren stated on Monday that markets overall are being too slow in pricing in further rate hikes. Similar comments were later made on Tuesday, which once again caused further selling among equities. The rather more hawkish tone sent the bond market higher as the 10 Year US Treasury Note price climbed $0.70 or 0.54% to close Friday at $130.87. Such a move higher is counterintuitive to what one would expect as interest rates and bond prices usually move in opposite directions. From this one can make out that the market believes that the next hike will come later rather than sooner. However, inversely, the US Dollar Index fell last week, marking its second straight week of declines. A fall in the USD Index reflects a move lower on the part of the US Dollar across a basket of heavily traded currencies. A move higher in rates would send the US Dollar higher as traders would be seeking higher yields in US markets. The fact that this index fell by 0.39% last week further shows that the market is under the firm belief that rates will rise later rather than sooner. The other major news story last week was the price of WTI crude which climbed 8.27% last week to settle Friday at $39.66. Last week crude experienced a decline in inventories which sent price higher. Additionally, on Friday it was announced that there is hope for a coordinated cut in supply. This statement sent the market rallying as prices were able to close just shy of its weekly highs on Friday.

As mentioned in previous weeks, the TSX has been unable to push higher above its 200-day simple moving average. Such was the case last week as the index traded in a relatively narrow range, falling 0.32%. With this being said, one of the major catalysts for news last week was that of the Canadian unemployment rate for the month of March. On Friday, it was reported that the unemployment in Canada dropped from a previous reading of 7.3% to 7.1% in March. This drop came as a surprise to the market as the consensus among economists was no change from the prior reading. Adding to the positive news was the fact that the participation rate did not change from the previous reading of 65.9%. This means that unemployment did not fall because fewer people left the labour force but rather those who were looking for work found jobs. This very strong unemployment rate sent the TSX higher by 0.98% on Friday; however, it was not large enough to send the index out of the red for the week. Going forward the simple 200-day moving average will act as a key line of resistance for any attempts to the upside. It must be noted that this index is moving lower as it reacts to recent drops in price, putting additional pressure on the TSX.

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