Weekly Wrap-Up April 12-16, 1999

The North American equity markets were mixed as Toronto and the Dow moved higher with the DJIA setting five record highs. The S&P500 and Nasdaq were the goats on the week. Bond markets sagged as US corporate supply and investor belief that the Bank of Canada is on hold for the near-term helped to push yields higher. The growing belief that the bad news for Asia and Latin America is behind us, has provided a bid to commodities. The rediscovery of commodities has lead to some sector rotation as investors move out of the momentum driven high tech and internet markets and into the resource and cyclical sectors. The volumes are still limited to a narrow percentage of equity issues as investors continue to pay a premium for liquidity. Small cap stocks remain out of vogue.

The North American bond markets sagged over the week. US corporate supply and investor belief that the Bank of Canada is on hold for the near-term helped to push yields higher. Economic data continues to tell the same 'Goldilocks' story for the economy - solid growth with little concern over building inflationary pressures.

The US corporate bond market was awash in new issues last week as corporations took advantage of low absolute rates. More than $US 10 billion in new corporate supply came to the market. As well, the technical picture of the market has been breaking down as the momentum faded for a continued rally. The market had pushed up to the high end of the recent range. With most shorts covered, there was little incentive for the market to move higher.

The Canadian investment community has come to the conclusion that the Bank of Canada will be on hold for the near-term. Investors had been looking for another ease by the central bank on expectations that the inflation rate in Canada will remain below the Bank of Canada's target range of 1-3%. Each day investors waited eagerly for the Bank of Canada to make its move during the traditional 9:00am window for operation. Each day their patient wait has gone unrewarded. A question for those who are watching the Bank of Canada eagerly - With the recovering commodity markets, will the Bank cut rates or just allow the price increases to make their way into the inflation data on their own?

Oil continues to recover form its 12 year lows of earlier this year. The increase in crude prices is the result of compliance by OPEC nations with the recently announced cut back in output. The 2.7% decrease in global supply announced April 1, has been having an effect, aided this week by the formal announcement by Iran of its intention to cutback output to its major customer, Japan.

On the economic front, several releases hit the markets this week. In the US, CPI rose 0.2%, with the core rate (ex-food & energy) up 0.1% in March; retail sales rose 0.2%; hourly earnings rose 1.8% on a yearly basis (the smallest increase since November of 1997); business inventories rose 0.4%; sales rose 0.9%; housing starts fell 1.3%. In Canada, housing starts rose 2.7% in March; department store sales fell 2.6% for the month of February.

The Canadian 30 year long bond added 8 basis points to close the week yielding 5.37%. South of the border the US 30 year Treasury bond added 12 basis points to yield 5.57% at the close. The Canada/US 30 year spread narrowed back in 4 basis points to -20. (A basis point is 1/100th of a percent.)

The North American equity markets were mixed on the week as the techs and .coms lost favour to the cyclicals and resource sector. The growing belief that the bad news for Asia and Latin America is behind us, has provided a bid to commodities. The rediscovery of commodities has lead to a bit of sector rotation as investors move out of the momentum driven high tech and internet markets and into the resource and cyclical sectors. The volumes are still limited to a narrow percentage of equity issues as investors continue to pay a premium for liquidity. Small cap stocks remain out of vogue.

Merger and acquisition activity slowed somewhat this week after a succession of high profile deals over the last couple of weeks. Of note was Cisco Systems announced purchase of GeoTel for $US 2 billion in a deal aimed at bolstering the companies voice communications capabilities over the internet. This adds to the two deals announced the previous week by Cisco which saw the firm acquire Fibex Systems and Sentient Networks, adding to its asynchronous transfer mode technology capabilities. Not to be left behind, IBM announced a technology alliance with RealNetworks aimed at bolstering Big Blue's voice transfer technology for internet applications.

The TSE closed above the psychological 7000 level this week. It has been about a year since the Toronto exchange has seen this lofty level. The TSE closed the week up 123.46 points, or 1.79%, at 7013.23. The DJIA was the power house of the week setting 5 record high closes. The Dow added 320.05 points, or 3.15%, to close at 10493.89. The S&P 500, along with the Nasdaq, shed some of their recent gains as investors moved from the high techs to commodity based stocks. The S&P500 was off 2.18%, while the Nasdaq was down 4.20%. Announcements of earnings concerns by Intel, Compaq and Sun Microsystems did little to help the tech stocks.

Next week brings little in the way of data in the US, but the economic calender in Canada is full with the eagerly awaited CPI data released mid-week. Will the Bank ease if inflation remains below the target band of 1-3% .... odds are against it. Good trading.

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