Weekly Wrap-Up

October 18-22, 1999

The North American bond markets continued their trend lower this week. Even a tame CPI report could not take the ugly edge off the fixed income markets. The bearish tone continues, with many commentators talking about the 6.50% level as being the next psychological level for the market. The equity markets reversed their recent losing ways this week. Strong earnings reports out of Microsoft helped, as did Federal Reserve Board Kelly's comments. Earnings reports are the key to performance in the equity markets at present. Companies meeting analyst expectations are not rewarded, failing to meet these expectations results in a drubbing by the market. Just ask IBM.


TSE Change DJIA Change S&P Change Nasdaq Change
Monday 6868.24 -16.20 10,116.28 96.57 1,254.13 -6.72 2,689.15 -42.68
Tuesday 6853.95 -14.29 10,204.93 88.65 1,261.32 7.19 2,688.18 -0.97
Wednesday 6930.75 76.80 10,392.36 187.43 1,289.43 28.11 2,788.13 99.95
Thursday 6952.38 21.63 10,297.69 -94.67 1,283.61 -5.82 2,801.95 13.82
Friday 7040.27 87.89 10,470.25 172.56 1,301.65 18.04 2,816.52 14.57
% Change 2.26% 155.83 4.50% 450.54 3.24% 40.80 3.10% 84.69


GOLD Change $CDN/$US 30yr Cda Change 30yr US Change
Monday 310.20 -4.70 1.4937 6.29 +9bps 6.32 +6bps
Tuesday 308.00 -2.20 1.4888 6.32 +3bps 6.34 +2bps
Wednesday 305.80 -2.20 1.4861 6.34 +2bps 6.33 -1bps
Thursday 304.00 -1.80 1.4815 6.32 -2bps 6.35 +2bps
Friday 301.80 -2.20 1.4775 6.33 +1bps 6.35 unch
% Change -4.16% -13.10 - +13 bps +9 bps


The North American bond markets continued their trend lower this week. Even a tame CPI report could not take the ugly edge off the fixed income markets. The bearish tone continues, with many commentators talking about the 6.50% level as being the next psychological level for the market.

After the comments out of Federal Reserve Board Chairman Alan Greenspan last week about concerns over equity prices, and the risks that investors are accepting a little Fed speak was warrented. This week the market heard comments out of Federal Reserve Governor Edward Kelly who indicated that the Fed "can not and does not and will not" target equity prices. These comments came mid-week, allowing equities to finish the week strong.

The Federal Reserve Board announced that it has broadened the list of eligible securities for collateral loans over New Year. This has been done in order to help the Fed add liquidity to the markets in an effort to stem worries about the Y2K millennium bug. The Federal Reserve Board has been vigilant with respect to assuring stable capital markets through out the New Year period.

Economic data continues to show more of the same, strong economic growth with little signs of price instability. In the US, CPI came at +0.4%, with core up 0.3% in September, year-over-year CPI rose 2.6%, with the core rate up 2.0%; building permits fell 7.3%; the trade deficit narrowed to $US24.1 billion from $US 24.9 billion, exports rose 3.7% while imports rose 2.0%. In Canada, the trade surplus rose to $CDA 3.6 billion; retail sales rose 1.2% in August.

The fixed income markets continue in bearish mode, as investors worry about the timing of the next Fed rate hike. Investors are also worried that the rate hikes initiated in June by Federal Reserve Board Alan Greenspan will continue into the new year, more than erasing the liquidity provided to the global capital markets during last Fall's meltdown.

Supply has been limited, and the markets have digested corporate offerings well over the past week. Next week brings little in the way of new corporate supply, while the Government of Canada will be issuing $CDA 2.6 billion 10 year bonds.

The Government of Canada 30 year long bond added 13 basis points over the week to close yielding 6.33%. In the US, the Treasury 30 year long bond added 9 basis points to close at 6.35%. Both markets are in weak shape technically, with little investor interest. Look for the markets to test the psychological 6.50% level. (A basis point is 1/100th of a percent.)

The North American equity markets reversed their recent losing ways this week. Strong earnings reports out of Microsoft helped, as did Federal Reserve Board Kelly's comments. Earnings reports are the key to performance in the equity markets at present. Companies meeting analyst expectations are not rewarded, failing to meet these expectations results in a drubbing by the market. Just ask IBM.

'Big Blue' announced that the earnings for the fourth quarter would be lower than expected due to Y2K concerns. The millennium bug is not expected to hurt the company's systems, but rather purchases of the company's equipment by IT professionals. Purchases are expected to decline in th efourth quarter as IT managers prepare for the Y2K event. Integrating new equipment into current systems will only add to the IT professionals' headaches.

Fibre optics firm Sycamore Networks' IPO rose 426% on its first day of trading this week. There seems to be a frenzy for technology related issues that won't go away. Many less 'glamorous' firms with stable cahflows and strong ROE continue to be over looked by investors. 'Stories' come and go, and are sold to investors, while cashflows are king, and bought by those who do their investment research.

The TSE added 155.83, up 2.36%, to close the week at 7040.27. The DJIA added 450.54 points, or 4.50%, to close at 10,470.25. The S&P added 3.24%, while the Nasdaq rose 3.10%.

Next week brings supply to the 10 year sector of the Canadian bond market as the Government of Canada issues $CDA 2.6 billion. Little corporate or provincial supply is planned due to the weak tone of the fixed income markets. More earnings reports are expected this week, as big Canadian names such as BCE are expected. The markets remain nervous and vulnerable, buying dips is a costly strategy at present. Good trading.

Weekly Wrap-Up Archives

The Markets Page

The Financial Pipeline Homepage