Weekly Wrap-Up September 6-10, 1999

The North American bond markets bounced around all week as investors did battle over the potential for further Federal Reserve Board interest rate hikes. Comments made by Fed officials early in the Labour Day Holiday shortened session provided little direction. News of stronger than expected economic growth out of Japan pushed the balance to further rate hikes. Inflation friendly core inflation data at the producer level allowed bonds to finish the week with only modest losses. Equity markets had a see-saw week as investors herded from one sector to another trying to locate the hot stocks. Oil and gas, resources, base metals, golds and technology stocks did well. The goats of the market were the interest sensitives and financial sectors. The technologies did well due to an industry analyst increasing the earnings estimates on the large cap technology stocks.

The North American bond markets bounced around all week as investors did battle over the potential for further Federal Reserve Board interest rate hikes. Comments made by Fed officials early in the Labour Day Holiday shortened session provided little direction. News of stronger than expected economic growth out of Japan pushed the balance to further rate hikes. Inflation friendly core inflation data at the producer level allowed bonds to finish the week with only modest losses.

Several of the Federal Reserve Board officials made public speeches over the course of the week. None of the guru's of monetary policy in the US gave investors any clue to the future direction of interest rates. The uncertainty proved to be more than the bond markets could handle, even with benign inflation statistics.

The IMF indicated in an economic report released this week that faster economic expansion is expected. As a result of a recovering European economy and a resurgence in economic activity in Asia, economic growth is expected to continue.

The surprise of the week came from the Bank of England. The British central bank increased short-term interest rates by 25 basis points, to 5.25%. The Bank cited the rise in housing prices, low unemployment levels and a recovering Euro for the need to act. This prompted investors to wonder how long until the next Fed rate hike.

Economic data released this week was limited, however, it added greatly to market activity. In Canada, the unemployment rate rose to 7.8%, up 0.1%; 6,500 jobs were lost; the labour force grew by 3,900. In the US, PPI rose by 0.5%, while core inflation dropped 0.1%; headline PPI rose 2.3% year-to-date, with core PPI down 0.4% year-to-date. The majority of the increase in PPI was accounted for by the increase in oil and gas prices. Both pieces of economic data lend themselves to the view that neither the Bank of Canada, nor the Federal Reserve Board will need to raise interest rates soon.

The Government of Canada 30 year long bond added 8 basis points over the course of the week to yield 5.84%. Supply and concern over the possibility that the Bank of Canada may have to match any future rate hikes by the Fed pushed bond prices lower. In the US, the US Treasury 30 year bond added 1 basis point over the week to close at 6.03%. The US market fared better due to a small flight to quality bid that entered the market due to the default of Ecuador's Brady bonds, and the benign core inflation data released at week's end. (A basis point is 1/100th of a percent.)

The North American equity markets had a see-saw week as investors herded from one sector to another trying to locate the hot stocks. Oil and gas, resources, base metals, golds and technology stocks did well. The goats of the market were the interest sensitives and financial sectors. The technologies did well due to an industry analyst increasing the earnings estimates on the large cap technology stocks.

The TSE was the winner this week as the Toronto exchange added 157.23 points, or 2.24%, to close at 7163.74. The resource heavy index rose with commodity prices and expectations of further economic stability in Asia. The DJIA closed almost unchanged on the week, down 50.02 points, or 0.45%, at 11,028.43. The S&P500 closed at 1351.68, down 0.41%, while the Nasdaq posted a record high close at 2887.06, up 1.55% on the week. Year-to-date the Nasdaq is up 31.67%, the DJIA is 20.12% higher and the TSE is up 10.44% - Toronto remains 8.42% below it's high of April 1998.

Next week brings a host of economic data, including CPI data. There is a host of corporate bond supply to be priced and there looks to be a number of high-tech IPO's to come to market over the next six weeks. Supply, supply, supply. The question still remains - Will the fed raise on October, 5, or wait until November, 16? Good trading.

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