Weekly Wrap-Up August 30 - September 3, 1999

The North American bond markets experienced a bad week, with a good finish. The fixed income markets focused all week on an array of economic data which indicated that inflation is of concern. To many investors this meant that the Federal Reserve Board would raise interest rates at its next meeting October, 5. An extremely inflation friendly employment number reported in the US, Friday, brought the markets roaring back. The rally was a short covering rally in a thin holiday weekend shortened session, and should not be considered a permanent change in market sentiment. The North American equity markets experienced the same inflationary roller coaster ride displayed by the bond markets. Even comments made by noted market guru and eternal bull, Abbey Joseph Cohen could not help the markets early in the week. Ms Cohen sees one more interest rate hike this year and believes that stocks will continue to rise. In an interview on CBS, Ms Cohen stated "what ultimately drives stock prices is how long the economy can grow and we don't see that ending". The sentiment was definitely that equity prices will continue to rise along with earnings and corporate profits.

The North American bond markets experienced a bad week, with a good finish. The fixed income markets focused all week on an array of economic data which indicated that inflation is of concern. To many investors this meant that the Federal Reserve Board would raise interest rates at its next meeting October, 5. An extremely inflation friendly employment number reported in the US, Friday, brought the markets roaring back. The rally was a short covering rally in a thin holiday weekend shortened session, and should not be considered a permanent change in market sentiment.

Of note around the globe this past week was news out of Japan that the unemployment rate for July rose to 4.9%. This is the highest level since Japanese statistics have been recorded. The number of Japanese unemployed continues to rise, and this does not lend itself to a consumer lead recovery.

Although you can hardly tell it from the price action this week, rumours in the market indicate that China may want to increase its gold reserves. The numbers bantered about have the Chinese Central Bank moving their reserve levels from 400 tonnes to 1000 tonnes. If this is true then the Chinese should talk to the Swiss, the Dutch, and the British about their plans to reduce their central banks holding of gold reserves.

Economic data this week started out indicating that inflationary pressures were on the rise, only to have the market take all the inflation concerns out of the price of financial assets with Friday's non-farm payrolls release in the US. In Canada, second quarter GDP rose 0.8% quarter-over-quarter to an annualized rate of 3.3%, the price deflator rose 0.7%; the current account deficit was $CDA 1.4 billion. In the US, consumer confidence fell to 135.8 from 136.2; Chicago PMI dropped from 60.5 to 56.1, however prices paid rose to 63.8 from 59.8, the NAPM prices paid component also rose; factory orders rose 2.1%; retail sales rose 6.6% year-over-year on a same store basis; construction spending rose 3.3% on a year-over-year basis, with the monthly figure declining 0.5%; non-farm payrolls rose 124,000 jobs, hourly earnings declined 0.1 to an increase of 0.2%, hours worked rose 0.1 to 34.6, overtime hours worked declined 0.1 to 4.6.

The economic data was pushing the bond market weaker through out the week, until the non-farm payrolls number was released. The market was thin, with many traders and investors taking advantage of the long weekend to take extra time off. A weaker than expected payrolls number in the US allowed the market to take most of the inflationary price action out of the market. In Canada the Government of Canada 30 year long bond finished the week unchanged, after a terrible start to the week. The 30 year closed at a yield of 5.76%. In the US, the US Treasury 30 year bond got back to within 4 basis points of were it closed last week, finishing weaker at 6.02%. (A basis point is 1/100th of a percent.)

The North American equity markets experienced the same inflationary roller coaster ride displayed by the bond markets. Even comments made by noted market guru and eternal bull, Abbey Joseph Cohen could not help the markets early in the week. Ms Cohen sees one more interest rate hike this year and believes that stocks will continue to rise. In an interview on CBS, Ms Cohen stated "what ultimately drives stock prices is how long the economy can grow and we don't see that ending". The sentiment was definitely that equity prices will continue to rise along with earnings and corporate profits.

The TSE wore the goat horns this week finishing down 1.41%, or 100.07 points, at 7006.14. The DJIA recovered close to unchanged, finishing down 11.72 points, at 11,078.45. The S&P500 managed to post a 0.67% gain to close at 1357.24, while the Nasdaq ran away with the ring, posting a 3.05% increase closing at 2843.11.

Next week brings some price inflation data in the US and employment news from Canada. The markets are very nervous with respect to the Fed's next move, and there is still the possibility of more sovereign debt defaults in Latin America. Good trading.

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