This commentary a guest contribution by David Andrews, CFA, Director, Investment Management & Research, RichardsonGMP Partners
Much like the weather at this time of year, investor appetite for risk also tends to come and go and can change rather quickly. Much like Mother Nature in springtime, the only thing consistent right now seems to be, well ...inconsistency. Economic data continues to be, at best, mixed. Last week was no exception as the markets were disappointed by an ADP employment report for March which showed that rather than creating employment in March, the U.S. economy actually lost 23,000 private sector jobs. With 90% of the world's markets closed in observation of Good Friday, the March non-farm payrolls report was strong with the creation of 162,000 jobs in the U.S. This followed the loss of 14,000 American jobs last month. Employment reports followed weaker housing data from the previous week and gave investors pause about the state of recovery in the world's largest economy. Without improvements in both employment and housing it will be difficult for the U.S. recovery to gain momentum. On the positive side, manufacturing data and consumer confidence surveys came in better than expected for March. In Canada, GDP for January was better than expected (+0.6% actual vs. +0.5% expected) adding yet more fuel to the likelihood of a hike to short term rates by the Bank of Canada sooner rather than later. Not waiting for it to be official, Banks increased rates on many of their loan products. Five year fixed rate mortgages increased by about 60 basis points last week.
Prevailing concerns about Eurozone debt problems seemed to ease last week following the announcement that the European Union and the International Monetary Fund had devised a plan to back stop Greece's ailing financial position. The rescue package is a combination of EU and IMP bilateral loans to be triggered only if Greece cannot raise funds independently in the capital markets. Last week, Greece was successful in raising 5 billion Euros of 7 year notes. Europe's leaders had hoped the announced deal would effectively lower the cost of borrowing for Greece until they can get their deficit down to 8.7% of GDP from the current 12.7%. Yields on 10 year Greek bonds have ticked up an additional 25 basis points since the rescue was announced, so it would seem the market is trying to test the mechanism of support. For perspective, it now costs the Greek government twice as much to borrow as it does the Germans based on 10-year yields.
Energy stocks strengthened last week as crude oil investors bid up the price against a softening U.S. dollar and evidence that economic indicators were indeed pointing to improvement. Crude oil broke out of its recent $70-$85 range on better global economic data and expected demand. We see oil continuing to appreciate as the economic recovery continues to improve into the spring. The conference board recently reported a big positive move in consumer confidence in March and we also saw the U.S. dollar weaken last week which is also supportive of the oil price (priced in U.S. dollars). Crude had a bullish break above US$83.95 with an intermediate technical target of US$105. Copper and Gold also had significant technical breakouts last week, indicating that the "Risk On" trade was back in vogue. Copper is often referred to as "Dr. Copper" for its predictive ability to forecast the economic future. So goes copper, so goes the economy is a common axiom and while not infallible, traders and investors should take note.
Looking ahead to this week, the economic calendar is a bit lighter than usual but we do get ISM non-manufacturing for March and February's pending homes sales out on Monday. On Thursday, weekly jobless claims are released and Canada's March employment data is out Friday. For the record, the Dow Jones Industrial average in New York closed last week at 10850.36 or up 0.29% (local currency) for the holiday shortened week. The S&P/TSX closed above the 12000 mark at 12151.10 or up 1.0%.The value of the Canadian dollar increased 1.24% against the U.S. dollar last week.
Source: weekly-5-april-2010-final, Richardson GMP Limited.
