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Weekly Wrap-UpJuly 10-14, 2000 |
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Weekly Wrap-UpJuly 10-14, 2000 |
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The North American bond markets did little this week, as investors digested the economic data, and waited on the Federal Reserve Board Chairman's testimony next week. With a host of economic data released this week providing a mixed signal on whether or not the US economy is slowing, investors were not prepared to take big position bets. Federal Reserve Board Chairman Alan Greenspan delivers the first part of his semi-annual speech to the Senate Banking Committee next week, and many believe he will provide investors with guidance with respect to the Fed's stance on interest rates.
The Fed Chairman spoke this week at a conference of economists. Mr. Greenspan's remarks indicated that the advances in technology were scaring labour into accepting smaller wage hikes as concern over job security increases. His comments also touched on the growth of US productivity, indicating that until the US experiences an economic slowdown it is difficult to know for sure how much of the productivity gains are permanent.
Saudi Arabia and Venezuela support an increase in production of crude oil. The OPEC nations are not united on a production increase. However, Saudi Arabia indicated that it did not want to jeopardize the global demand for oil by pricing it out of reach. Depressed global demand would have a negative impact for all the OPEC nations, so it would be in the cartel's best interests to maintain a united front. If the cartel cannot maintain a united front, look to Saudi Arabia to unilaterally increase production.
Economic data released this week in both Canada and the US indicate an economy which is slowing, but with a firm tone. In the US, wholesale inventories rose 0.8% month-over-month (m/m) in May with April results revised higher; PPI rose 0.6% with the core rate down -0.1% m/m in June; retail sales rose 0.5% m/m with May revised higher; industrial production rose 0.2% m/m with May revised higher; capacity utilization was 82.1% in June, down 0.1 from May; consumer credit swelled $US 11.8 billion m/m in My. In Canada, housing starts fell 1.8%; new house price index rose 0.3% m/m in May, up 2.4% year-over-year (y/y); CPI rose 0.6% m/m in June, with the core rate up 0.3% m/m, headline CPI rose 2.9% y/y and core CPI rose 1.4% y/y.
The bond markets on both sides of the border did little as momentum has run out for a rally as all the good news appears priced into the market. With Federal Reserve Board Chairman Alan Greenspan delivering is Senate Banking Committee speech next week investors had little reason to get excited. The market chopped around on thin volumes. A coupon pass by the Fed late in the week had traders scrambling to cover shorts set up to take advantage of technical trading patterns. In Canada, the Government of Canada 30 year long bond added 4 basis points to yield 5.57%. The US Treasury 30 year long bond was unchanged in yield by week's end at 5.87%. The Canada/US 30 year long bond spread now stands at -30 basis points. (A basis point is 1/100th of a percent.)
The North American equity markets leaned heavily on the support of earnings reports to advance this week. Announced mergers had a mixed affects on the markets. The TSE set three record high closes and traded above the DJIA interday for the first time since April 1995. The Nasdaq has moved back into positive territory for the year-to-date (ytd).
Alcoa surprised to the market to the upside in its second quarter earnings release, as did Yahoo. These two stocks set the base metals and techs up to out perform on the week. JDS Uniphase was hurt by a $US 41 billion offer to purchase competitor SDL Inc., as the market carved more than $US 10 billion off of JDS's market cap. UBS announced its intention to buy US broker PaineWebber for a reported $US 10.8 billion. On this news the financial sector caught a speculative bid.
The TSE added 398.52 points, or 3.84%, on its way to three consecutive record closes culminating in Friday's close at 10,778.84. The Toronto exchange is now up 28.11% year-to-date. The DJIA was up 176.77 points to close 1.66% higher at 10,812.75. The Dow remains in negative territory on the year at -5.95%. The S&P500 added 2.10% to close at 1509.98, while the Nasdaq added 5.54% to close up at 4246.18. The Nasdaq is now up 4.35% ytd.
Next week brings US business inventories, and CPI, Canadian housing starts, the G8 Summit in Japan, and the Senate Banking Committee speech by Federal Reserve Board Chairman Alan Greenspan. Of all the releases next week, investors are waiting on the words of Mr. Greenspan most. Good trading.
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