Weekly Wrap-Up May 8-12, 2000

The North American bond markets were mixed this week ahead of next weeks FOMC meeting. Technically driven trading in the US, combined with thin markets say bonds sell off early in the week before closing off the lows. Look for the Federal Reserve Board meeting next Tuesday to draw the attention of investors, as well as the Bank of Canada's reaction Wednesday to the Fed move. The equity markets were generally weaker this week, on thin volumes and interest rate concerns. Although, the tone improved as the week came to a close, as traders believe that the Fed is almost finished with these nasty interest rate increases. Its been said before, and it will get said again, and eventually those traders will be right. But not yet.

The North American bond markets were mixed this week ahead of next weeks FOMC meeting. Technically driven trading in the US, combined with thin markets say bonds sell off early in the week before closing off the lows. Look for the Federal Reserve Board meeting next Tuesday to draw the attention of investors, as well as the Bank of Canada's reaction Wednesday to the Fed move.

The Japanese economy gives little reason for the Bank of Japan to abandon its 'Zero' interest rate policy in the near-term. Household spending in Japan fell 4.5% month-over-month (m/m) in March, down 4.3% year-over-year (y/y). This mirrors the results witnessed in the same store sales figures recently released in Japan. The consumer continues to be absent from the economy.

The European Central Bank left interest rates unchanged at the meeting this week. This is not Euro positive news. The fledgling currency continues to get hammered by the international currency markets, and this trend will continue as long as capital continues to flow into the United States. When the Fed raises rates next week the Euro will resume its weakening trend. As an aside, Euro denominated sovereign debt is being purchased by central banks, as opposed to institutional investors. Reflects lack of confidence by investors in the near-term prospects for the Euro.

Crude oil is creeping back up to the $US30 level. This increase is occurring as a result of the perceived deterioration in international inventories of oil, at a time when global markets are experiencing an increase in demand. The International Energy Agency released a report this week which indicated that the global demand for crude is likely to outpace global supply. To add to the price action, OPEC indicated that an increase in production quotas is unlikely at the next meeting. Oil Ministers from Venezuela, Mexico and Saudi Arabia reiterated those sentiments.

Economic data was sparse this week in both Canada and the US. The data that was released made several commentators speculate that the Fed would only raise interest rates 25 basis points, rather than the 50 basis points priced into the market. Yeah, whatever. In Canada, housing starts fell 5.4% m/m in April, with single units down 12.7%, housing starts are up 9.5% y/y. In the US, wholesale inventories rose 0.7%, business sales rose 1.0%, and the inventory to sales ratio fell to 1.28 months; PPI fell 0.3%, with core rising 0.1% m/m, putting PPI up 3.9% y/y, with the core rate up 1.3% y/y.

The US bond market saw yields back up substantially early in the week, as technical trading dominated thin markets. The US Treasury 30 year long bond backed up to 6.25% into supply, and managed to claw its way back to 6.19%, up 1 basis point on the week. Adding to the early sell-off was $US 12 billion 5 year supply and $US 8 billion 10 year supply in the US. In Canada, the 30 year long bond shed 6 basis points to close the week at a yield of 5.80%. Hawkish notes out of the Bank of Canada helped investors into the view that the Bank will remain ahead of the inflation curve. It is presumed that the Bank of Canada will match any rate increase next week made by the Fed.

The North American equity markets were generally weaker this week, on thin volumes and interest rate concerns. Although, the tone improved as the week came to a close, as traders believe that the Fed is almost finished with these nasty interest rate increases. Its been said before, and it will get said again, and eventually those traders will be right. But not yet.

Nortel helped the markets move lower this week as a bearish article in Barron's indicated that the company's current market valuation is not sustainable if the pace of acquisitions slows. Cisco also hurt the markets with concerns from analysts, and statements that parts shortage could negatively impact earnings. Motorola was tarred with the same brush. Intel added to the downdraft as it announced a $US 300 million circuit board recall.

A 10% increase in the price of crude oil did help the oil and gas sector do better on the week. Look for this trend to continue.

This week the TSE shed 385.52 points, or 4.02%, to close at 9211.80. This leaves the Toronto exchange up 9.49% on the year. The DJIA added a marginal 31.51 points, or 0.30% to close at 10,609.37. The S&P 500 closed down 11.67, or 0.81%, at 1420.96. While the Nasdaq is the goat of the week, down 287.76, or 7.54%, to close at 3529.06. A violation of the Nasdaq's 200 day moving average will paint a negative picture form a technical stand point. The week leaves the DJIA, S&P 500 and Nasdaq down 7.72%, 3.29% and 13.28% on the year, respectively. As ominous as this sounds, particularly for the Nasdaq, the tech heavy exchange is only sitting at early December 1999 levels.

Next week will have all traders and investors focused on the actions of the Federal Reserve Board. All comments out of the Fed and the Bank of Canada argue for a larger rather than smaller rate hike. Time will tell. Good trading.

Weekly Wrap-Up Archives

The Markets Page

The Financial Pipeline Homepage