Recap: Week Ending April 22, 2016:
The overall tone in equities was mixed last week as earnings from tech companies disappointed. Last week the technology-heavy NASDAQ 100 index finished the week lower by 1.52%, a fairly steep drop in comparison to its counterparts which rallied. The Dow Jones was the stronger of the performing indexes last week as it rallied 0.59% to settle the week slightly above the 18,000 level. One of the major catalysts for upside activity in the equity complex was that of the rally in crude oil. Despite a failure to reach an agreement with regards to capping production at the most recent Doha event, energy prices rallied. Last week the price of WTI crude settled up $2 or 4.79% to close Friday at $43.75. The move higher in crude marks the third straight week of gains. With this being said, the relationship between the price of crude and that of equities appears to be still in existence as the prices of both assets have risen for two straight consecutive weeks. The overall natural relationship between bonds and equities also appears to be once again emerging. Last week the 10-Year US Treasury Note futures price fell by $1.21 or 0.93% to close the week at 129.23. Last week was also the second straight week of declines for the fixed income product. Furthermore, gold, which has taken the stand recently as a risk-off asset sold off last week, falling by $2.10 to settle the week at $1,233.70. Overall, it appears that equity markets are relatively comfortable as the S&P attempts to break above the all-time highs which it established in May of last year at 2,134. With the S&P trading at 2,091 at Friday’s close, it may take a few weeks for the index to reach such levels. Once at these highs, the index may experience choppy horizontal trade as such was the case historically at when the index traded at these high levels.
In Canada the Toronto Stock Exchange Composite Index, or TSX, rallied hard last week as it settled up 1.74% to close the week at 13,873. The move higher in the price of crude oil without a doubt added further support for the TSX. As many of the companies which list on the TSX are dependent on the price of oil as a source of revenue, higher prices indicate larger revenues and greater valuations in equities. Concerning the economic calendar, the move higher comes as little announcements with great meaning were released last week with the exception of Friday. On Friday, the Bank of Canada released their core consumer price index for the month of March on a month over month basis. For the month of March, the index rose 0.7% compared to an increase of 0.5% in February and 0.4% which was expected by the consensus for March’s reading. This figure indicates that there was price growth in the Canadian economy last month as inflation slowly grew. Inflation is healthy in an economy as it shows that more sums of money are chasing products/goods, and as a result prices of such goods rise in value. This release had a positive effect on the Canadian Dollar as it rose 0.51% on Friday to settle the week just below 0.79USD. Since the middle of January, the Canadian currency has rallied almost 10 cents against the US Dollar as the price of oil has somewhat rebounded. Taking a look at the technical analysis, the daily RSI, or Relative Strength Index, is currently reading 66, indicating it is just below the threshold of 70 being overbought. With regards to the MACD, or Moving Average Convergence Divergence indicator, the signal line is about to turn bearish, indicating that a drop in the CAD could be in store for the near future.