by David Andrews CFA, Private Client Strategist, Richardson GMP Ltd.
Relax, the reference has nothing to do with the rather loud and somewhat annoying music genre (you can put down the ear plugs). Rather, the weight of base and precious metal prices kept the S&P/TSX composite flat this week. Copper saw its first weekly drop in the past month on speculation the next round of Chinese economic data may prove disappointing to investors. Gold initially jumped but eased as the week wore on with mostly positive jobs and trade data tempering concerns about the global recovery. Equity trading volumes were once again light this week (the first 5 days of September saw 31% less volume than the previous year) with little investor conviction during this holiday shortened week (Labour Day & Rosh Hashanah). Oil moved up from U$74 to U$76.50 per barrel on shrinking U.S. stockpiles of crude, better global data and yet another oil pipeline leak incident reported on Friday.
The Bank of Canada completed its third rate hike in less than four months sending the CAD$ higher. Investors were left to ponder the timing of the Bank’s next move as the central bank did its best to ‘keeps its options open’. Canada recorded almost 36K jobs gained in August. Clearly a far better result than the 30K increase expected. This follows the July disappointment where 9K jobs were lost. The August unemployment rate ticked higher to 8.1%.
The S&P500 finished up slightly (+0.5%) supported by data showing a smaller than expected trade deficit and fewer weekly unemployment claims. Investor enthusiasm was tempered by a Federal Reserve report showing widespread signs of a slowing economy in recent weeks. The Financials sector gained after Morgan Stanley issued a report showing U.S. banks were likely going to be able to increase their dividends and buy back shares as early as next year. On Thursday, Germany’s Deutsche Bank was rumored to be in need of almost US$12 Billion in new equity. The surprise rekindled concerns about European banks and sent European stocks down from their four month highs.
In a perhaps concerning move, China chose to bring forward its release of August economic indicators by two days (to Saturday) spurring speculation policymakers may be preparing to increase interest rates. Consumer prices and industrial output data may show Chinese inflation data may have accelerated. Base metal and energy prices would likely stumble next week should China move rates as early as this weekend.
Looking Forward
The U.S. economic calendar gets revved up again next week with several key data points revealed. On Tuesday, August Retail Sales (ex. Autos & Gas) are expected to be up 0.3% after falling -0.1% the previous month. Any sign consumers are beginning to spend would be a positive, although there is likely more downside risk of further consumer retrenchment given the U.S. employment situation (see Chart of the Week). On Wednesday, U.S. Industrial Production is likely to show factories continue to do the heavy lifting for the economy, especially with the housing market still a mess. Weekly jobless claims, PPI and CPI will round out the week.
The committee on global banking supervision meets in Switzerland this weekend with Germany and the U.S. in disagreement on how much time banks should be given to comply with proposed new capital ratio requirements. Final recommendations are to be voted on by G20 members in November.
The Canada calendar is quiet with July Auto sales and Manufacturing data. Nothing likely to move the needle either way as the investment markets will focus on macro events (U.S. economy, China policy, European debt) for direction.
WeeklyCommentary-Sep13-10 [PDF]
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