Weekly Wrap-Up

June 14-18, 1999

The North Amwerican bond markets waited for two events this week before deciding to rally - US CPI and Federal Reserve Board Chairman Alan Greenspan's comments to Congress. A relief rally developed, followed by a short squeeze, with little follow through. The market is at risk of selling off again ahead of the Fed meeting June 29-30. While it is widely expected that the Fed will raise rates 25 basis points at the next meeting, the Bank of Canada is expected to maintain an independent stance given current economic conditions. Don't expect the Bank of Canada to follow the Fed lock-step. Equity markets rallied this week, as the comments by Federal Reserve Board Chairman Alan Greenspan eased fears of large interest rate increases. The Fed Chairman indicated that the Fed was considering reducing the liquidity it provided to the market in the dark days of the financial scare last fall. The commodities and technology companies benefitted as investors rotated out of financial stocks into stocks which may benefit from a 'recovering' Japanese economy.


TSE Change DJIA Change S&P Change Nasdaq Change
Monday 6895.62 -21.51 10,563.33 72.82 1,294.00 0.36 2,398.31 -49.57
Tuesday 6865.82 -29.80 10,594.99 31.66 1,301.16 7.16 2,414.67 16.36
Wednesday 6925.31 59.49 10,784.95 189.96 1,330.41 29.25 2,517.83 103.16
Thursday 6929.06 3.75 10,841.63 56.68 1,339.90 9.49 2,544.15 26.32
Friday 7005.06 76.00 10,855.56 13.93 1,342.84 2.94 2,563.44 19.29
% Change 1.27% 87.93 3.48% 365.05 3.80% 49.20 4.72% 115.56


GOLD Change $CDN/$US 30yr Cda Change 30yr US Change
Monday 261.10 -0.40 1.4605 5.76 -1bps 6.11 -3bps
Tuesday 260.10 -1.00 1.4637 5.77 +1bps 6.11 unch
Wednesday 259.10 -1.00 1.4592 5.71 -6bps 6.07 -4bps
Thursday 259.30 0.20 1.4622 5.60 -11bps 5.96 -11bps
Friday 260.30 1.00 1.4641 5.62 +2bps 5.96 unch
% Change -0.46% -1.20 - -15 bps -18 bps


The North Amwerican bond markets waited for two eents this week before deciding on a direction - US CPI and Federal Reserve Board Chairman Alan Greenspan's comments to Congress. A relief rally developed, followed by a short squeeze, with little follow through. The market is at risk of selling off again ahead of the Fed meeting June 29-30. While it is widely expected that the Fed will raise rates 25 basis points at the next meeting, the Bank of Canada is expected to maintain an independent stance given current economic conditions. Don't expect the Bank of Canada to follow the Fed lock-step.

The Japanese economy was in the headlines again this week as factory capacity utilization rates dropped 5.9% last month to the lowest levels in 25 years. Also a negative for future capital expenditures in productivity was the average 22% decline in corporate profits from a year ago. In an effort to increase assist the economy out of its recession, the Bank of Japan has been in the market aggressively selling the Yen versus the $US and the Euro, in an effort to keep the currency from appreciating. The Japanese want to export their way back to prosperity.

Economic data released this week provided a bid to the fiancial markets as the surprises came with an inflation friendly bent. In Canada, new car sales rose 1.5% month-over-month in April. In the US, inventories rose 0.2%; industrial production rose 0.2%; capacity utilization remained unchanged for the third month in a row at 80.5%; CPI was unchanged, with the core rate up 0.1%; on an annualized basis CPI is up 2.1%, with the core rate up 2.0%.

The bond market traded on thin volumes, with the trading accounts selling rallies and shorts getting squeezed as the market ran ahead of itself. The Government of Canada 30 year long bond shed 15 basis points on the week to close at 5.62%. The US Treasury 30 year bond outperformed the Canadian market shedding 18 baisi points to close at a yiled of 5.96%. Many strategists expect the long bond yields to move higher ahead of any Fed action. Sell the rumour buy the news.

The North American equity markets rallied this week, as the comments by Federal Reserve Board Chairman Alan Greenspan eased fears of large interest rate increases. The Fed Chairman indicated that the Fed was considering reducing the liquidity it provided to the market in the dark days of the financial scare last fall. The commodities and technology companies benefitted as investors rotated out of financial stocks back into stocks which may benefit from a 'recovering' Japanese economy.

The TSE rose 87.93 points, or 1.27% to close the week at 7005.06. The TSE is up 8% year to date, but still down 10.45% from its highs. The DJIA was up 3.48%, or 365.05 points, to close the week at 10855.56. The Dow is up 18.23% on the year and a mere 1.60% off its recent highs. The S&P500 added 3.80% on the week and the Nasdaq raced ahead 4.72%.

Next week brings alot of corporate bond supply and some economic data of interest to the markets. The risk/reward trade is on the short side of the market ahead of the Fed meeting June 29-30. Good trading.

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