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Weekly Wrap-UpMarch 13-17, 2000 |
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Weekly Wrap-UpMarch 13-17, 2000 |
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The North American bond markets rallied this week as investors took profit in technology stocks and found a safe haven for those profits in bonds. The announcement of a second $US 1 billion buy back of long dated US Treasuries helped the market tone. Inflation data in both Canada and US reassured the markets that the Fed and Bank of Canada were not falling behind the inflation curve. The bond markets are trading off the equity markets...when techs rally bonds hold back.
Inflation alert continues around the world, as the European Central Bank raised rates ahead of next weeks US Federal Reserve Board meeting. The ECB raised rates 25 basis points to 3.50%, citing the risk of inflation and a weaker Euro.
The weaker Euro caught the eye of the Bank of Japan, which was seen selling Yen and buying Euros and $US again last week. The BoJ must attempt to keep exported Japanese goods relatively competitive if it is going to develop any sort of self sustaining domestic economic recovery. Japanese fourth quarter GDP came in at -1.4%, following the -1.0% performance posted in the third quarter. The Japanese economy has technically sunk back into a recession, exemplifying the Japanese economy's current dependence on government spending.
Economic data released this past week continues to show an economy running at full steam, with inflation pressures driven primarily by petroleum products. In Canada, CPI rose 0.5% month-over-month (m/m) in February, core was up 0.3% m/m, headline inflation up 2.7% annually and core inflation up 1.6%; energy prices rose 19.4% year-over-year (y/y); fuel oil rose 22.1% y/y; gasoline rose 31.3% y/y (the largest increase in petroleum costs since 1981); manufacturing shipments rose 1.1% in January, new orders fell 2.1% m/m, but were up 13% y/y. In the US, retail sales rose 1.1% in February, up 1.0% ex-autos; business inventories rose 0.5% m/m, sales rose 0.8%; housing starts rose 1.3% m/m; PPI rose 1.0%, up 0.3% ex oil and food; CPI rose 0.5% in the quarter, up 3.2% y/y, with the core rate up 0.2% quarterly and up 2.1% annually.
The bond markets on both sides of the border were stronger this week: Canada inspite of itself, the US due to a second buy back program announcement. The Canadian bond market had to face supply form the Bank of Canada in the 10 year sector. A sloppy auction, with a meagre 1.88:1 times coverage lead to the Canadian market underperforming the US bond market. The US benefitted from the second announced buy back program by the US Treasury. This week a further $US 1 billion in 2018-2021 maturity bonds were retired. The US government has announced that it intends to retire $US 30 billion in debt this year.
The Government of Canada 30 year long bond finished the week yielding 5.75%, down 9 basis points. The US Treasury 30 year long bond finished the week 15 basis points better bid at a yield of 6.00%. The Canada/US 30 year spread has narrowed 6 basis points to -25 basis points. (A basis point is 1/100th of a percent.)
The North American equity markets were a mixed bag again this week. The twist was it was the 'Blue Chips' that outperformed the tech stocks. Investors took profit on the 'clicks' and invested in 'bricks', as the Nasdaq had been up almost 23% prior to this weeks sell off.
The rough ride for technology stocks started in Asia were internet stocks have fallen 30% in the past three weeks. North American investors began to take some of their profits off the table. Stocks on the Dow are looking relatively cheap in comparison to those of the Nasdaq. This week the Dow was trading at approximately 24 times earnings, the S&P500 at 30 times earnings and the Nasdaq at 325 times earnings. Some investors have begun to feel that there are value plays in other areas of the market.
Laidlaw was hammered this week on news that the Saftey Kleen division was investigating misstated financial statements dating back to 1997. As well, an announcement by the Safety Kleen sub that indicated that without an extension of bank lines, the company would not be able to continue operations did little for investor confidence. Other stocks with the wind taken out of their sails include the bio-tech sector which was knocked back on comments by UK Prime Minister Tony Blair, and US President Bill Clinton, that the human genome project should be publicly available to researchers and not held in the private sector.
The TSE added a mere 41.67 points, or 0.44%. to close the week at 9528.81. This puts the Toronto Exchange up 13.25% year-to-date. The DJIA captured the spotlight with an impressive 666.41 point rally, its largest percentage gain in 15 years and largest weekly point gain in history, up 6.71%, to close at 10,595.23. This still leaves the Dow down 7.84% on the year. The S&P500 posted an impressive 4.97% rally, to close at 1464.47. While, this week the Nasdaq wore the goat horns, shedding 250.49 points, down 4.96%, to close at 4798.13. The Nasdaq is still up 17.91% so far this year.
Next week brings little in the way of economic data. However, there are some interesting confabs going on. Not the least of which is the Federal Reserve Board FOMC meeting Tuesday, where rates are expected to rise 25 basis points. If this happens, look for the Bank of Canada to follow suit, the next day. Also the Bank of England will auction another 25 tonnes of gold. On March 27, the OPEC countries will meet to decide on oil quotas, so watch for comments out of member states this week in an effort to prepare the markets. Good trading.
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