Weekly Wrap-Up November 22-26, 1999

The North American bond markets diverged this week. Strong economic data in the US raised concern that the Federal Reserve Board may move sooner rather than later on interest rates. The Canadian market benefitted from strong economics and a weaker inflation picture. The equity markets had a mixed week, as both Toronto and the Nasdaq had record high closes, while the rest of the major exchanges did little. The Thanksgiving holiday shortened week in the US had an impact on market activity. Few traders came back to their desks after lunch on Wednesday.

The North American bond markets diverged this week. Strong economic data in the US raised concern that the Federal Reserve Board may move sooner rather than later on interest rates. The Canadian market benefitted from strong economics and a weaker inflation picture.

The US inflation picture is clouded by the excessively tight labour markets, and potential wage driven inflation that could result. In Canada, the labour market fundamentals are such that there is more slack, decreasing the likelihood of wage driven inflation.

Of note on the global scene was news out of South Korea of a 12.3% surge in third quarter GDP. This recovery in the South Korean economy is taking some of the pressure off the regions other beleaguered economies. In Japan, the trade surplus shrunk by 14.4% last month. This is the seventh consecutive decrease in the trade surplus. A strong Yen versus the $US is depressing exports, while the rise in oil costs have inflated import costs.

There were several economic releases this week. In the US durable goods dropped 1.3% in October following a 1.9% drop in September; third quarter GDP was revised up to 5.5% from 4.8%; price deflator declined to 1.7%; consumer spending rose 4.6%; personal savings rate declined to 2.1% a record low; personal income rose 1.3% in October, the largest increase since April 1994.

The strong economic data released in the US hurt the Treasury market. Other contributing factors to the rise in rates south of the border was the Thanksgiving holiday shortened week and $US 15 billion new 2 year bonds. Canada benefitted from a stable currency, strong economic fundamentals with lower inflationary pressures, pushing concerns that the Bank of Canada will not be raising rates again for several months.

The Canadian 30 year bond shed 6 basis points over the course of the week to yield 6.12%. In the US, the Treasury 30 year long bond added 7 basis points on the week to yield 6.24%.

The North American equity markets had a mixed week, as both Toronto and the Nasdaq had record high closes, while the rest of the major exchanges did little. The holiday shortened week in the US had an impact on market activity. Few traders came back to their desks after lunch on Wednesday.

Toronto managed to shuck off the laggard image as the week came to a close, breaking through the old record high set 22 April, 1998. The TSE managed to punch through to new highs on the back of Nortel, JDS and others in the fibre-optics market. Even with the recent enthusiasm shown for resource stocks, the TSE's recent rise has not been broad based.

The TSE added 196.83 points to close the week up 2.56% at 7889.94. The DJIA posted a marginal decline of 14.98 points, or 0.13%, to close at 10,988.91. The S&P500 also posted a marginal loss of 0.38%, closing at 1416.62. While the Nasdaq bucked the trend south of the border adding 2.33%, or 78.56 points, to close at 3447.81.

Next week brings employment data on both sides of the border. Due to the Fed's focus on the tight labour markets in the US, Friday's data release could be significant to the markets. As well, Monday of next week brings the third auction of gold by the Bank of England. An additional 25 tonnes of bullion will be sold. Good trading.

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