Weekly Wrap-Up March 29 - April 1, 1999, 1999

The independent Bank of Canada ease of 25 basis points provided support to the Canadian fixed income market, as the currency improved on the announcement. Canadian bonds outperformed the US as economic data south of the border pointed to higher prices paid by manufacturers. The influence of mergers exerted their effects on the equity market, while concerns over the degree to which oil and gas prices have moved caused some profit taking in that sector. The Federal Reserve Board's decision to leave rates in the US unchanged, with no shift in bias allowed the equity markets to move higher. No US bond investors wanted to go home too long over the Easter/Passover long weekend, while the markets were closed for the release of US non-farm payrolls. Look for the market to play catch-up early next week.

The North American bond markets moved independently of one another this week. Canada outperformed the US as economic data south of the border pointed to higher prices paid by US manufacturers. The independent Bank of Canada ease of 25 basis points provided support to the Canadian market, as the currency improved on the announcement. The Easter/Passover Holiday shortened week prevented the markets from fully reflecting all the economic data released over the week.

The Bank of Canada eased it's short term interest rate target by 25 basis points to 5.0%. This paved the way for a decrease in mortgage rates, as major lenders used the easier money policy of the Bank to initiate the move. As a result of the Bank of Canada move, the Canadian currency improved as foreign demand for Canadian bonds drew investors to the $CAD. The European Central Bank is meeting in the next couple of weeks, as is the Bank of England. Should the widely anticipated rate decreases materialize from these meetings, and Canadian inflation remain below the Bank of Canada's target range of 1-3%, then the Bank may set up for another ease.

The Federal Reserve Board's Open Market Committee met this past week. As expected, the Fed left short-term rates in the US unchanged. Reserve Board Chairman Alan Greenspan, along with the other 11 Governors were unanimous in their decision. Minutes released of the previous Fed meeting indicated that there was no dissent among the Governors, and the bias remains neutral. Some market commentators were calling for a bias shift to restrictive, indicating the next Fed move would be to raise interest rates. This possibility now appears to be remote.

Thailand announced a $US 3.5 billion stimulus package aimed at helping the country's failing economy. The infrastructure based project is designed to help bring the Thai economy out of recession. In South Korea, Government officials announced that foreign investors would be allowed to hedge their South Korean currency exposure through the FX markets. This is an attempt by the South Koreans to stimulate foreign direct investment in the economy. Malaysia's government announced that the country's GDP is expected to grow 1-2% this year, after turning in a dismal -6.7% last year. Many analysts have voiced the opinion that the worst is over in Asia. What of China?

The European Community has lowered its official projection for the trading blocks cumulative 1999 GDP. The Commission has lowered regional GDP forecasts from 2.6% to 2.2%. With the weak economic developments in Germany, and Britain's economy stagnating, rate cuts from both of the Central Banks responsible for theses two jurisdictions are likely in the next couple of weeks.

The IMF has been busy in Russia again. This time the IMF has negotiated a new loan with the Russian Government which will allow the Russians to meet the obligations of their current labilities to the IMF. Effectively the IMF has loaned the Russians money to prevent the Government from defaulting on loans already owed to the IMF.

Japanese unemployment reached a post World War II high of 4.6%. The corporate restructuring which has been going on in Japan over the last year continues to post new casualties. The latest employment report indicates that 670,000 Japanese lost their jobs last month. This is the largest single month increase in the ranks of the unemployed, and the 13th consecutive month of job reductions. More of this type of employment news is expected as Japanese companies continue to reduce their staffing needs, and idle excess production capacity.

Economic data released this week provided some initial worry in the US market of emerging inflation, but with the release of non-farm payrolls Friday while the market was closed, the market is expected to open significantly stronger on Monday.

In the US, new home sales declined 2% in February; personal income rose 0.5%; personal spending rose 0.7%; the savings rate was -0.2%; Chicago Purchasing Managers Index rose to 57 from 52.9; NAPM survey was 54.3 versus 52.4; non-farm payrolls rose 46,000; unemployment rate fell to 4.2%. The personal savings rate decrease can be traced to the recent surge in tax refunds. The NAPM and Chicago PMI both indicated that prices paid by manufacturers rose appreciably spurring fears of inflation. While the non-farm payrolls number should allay any inflationary concerns.

In Canada, wage settlements declined 0.1% in January; GDP rose at a 0.2% rate on a month-over-month basis in January. If job growth is sluggish and inflation remains below the Bank of Canada's target band, look for another independent move by the Bank of Canada. Governor Theissen has shown his hand, and is not afraid to play it.

The Canadian bond market outperformed the US market this week as the economic data south of the border had investors concerned about a resurgence in inflation, while the Canadian market benefitted from the Bank of Canada decrease in interest rates. Government of Canada 30 year long bonds shed 5 basis points this week to close yielding 5.38%. In the US, the 30 year Treasury bond added 8 basis points to close the holiday shortened week at 5.68%. The Canada/US 30 year spread moved to -30 basis points, only two ticks from its tightest level of -32 basis points. (A basis point is 1/100th of a percent.)

The North American equity markets were mixed on the week. The influence of mergers exerted their effects on the market, while concerns over the degree to which oil and gas prices have moved caused some profit taking in that sector.

Merger and acquisition activity was not as fast paced as we have seen it so far this year, but the deals announced were significant. CA bought Platinum Tech for $US 3.5 billion; CBS bought King World for $US 2.5 billion; BP Amoco bought Arco for $US 26.8 billion; Yahoo.com bought Broadcast.com for $US 5.7 billion. Further consolidation in the oil and gas sector, and a major consolidation in the internet stock sector. Beware of companies with no cashflows, consolidating other companies with no cashflows.

The TSE lagged the rest of the North American equity markets this week. Concerns over whether the recent move up in oil & gas sector stocks is warranted given the OPEC compliance record for quota restrictions did not help the Canadian exchange. Toronto closed down 10.39 points, or -0.16%, at 6624.81. The DJIA closed above 10,000 for the first time this week, setting a new record high close in the process. The Dow finished the week up marginally, gaining 10.27 points, or 0.10%, to close at 9832.51. Goldman Sachs' equity guru Abbey Joseph Cohen indicated that IBM and Dell are currently undervalued adding fuel to the tech fire. The S&P500 benefitted from the words of Ms Cohen, adding 13.92 points, or 1.09%, to close at 1296.72. The Nasdaq was the clear winner on the week, benefitting significantly from the Yahoo.com/Broadcast.com merger. The Nasdaq tacked on 74.02 points, or 3.07%, to close at 2493.37.

Next week brings inflation data in Canada and the US, as well as employment data in Canada. With the inflation friendly non-farm payrolls number released to a closed market last Friday, look for bond and equity markets to rally early next week. Good trading.

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