Weekly Wrap-Up December 22-26, 1997

Closing Numbers

The North American bond markets were dominated by the desire of both traders and investors to say good-bye to 1997, and spend some time away from the markets for the Holidays. The Asian Flu continued to be its ever-present self again this week, as South Korea, Indonesia, and Thailand were downgraded by the ratings agencies to below investment grade, and Malaysia was downgraded but retained investment grade status. The financial sector of the Asian markets was also downgraded by the rating agencies. Adding to the concern overseas, Moruso Securities of Japan, a mid-sized securities dealer, went bankrupt. The G7 and the IMF announced an aid package of $US 10 billion to help South Korea meet its international debt obligations. All this taken together was a negligible for the bond markets, as few traders were prepared to step up to the plate, with the liquidity in the markets poor.

Economically, Canada reported Net Foreign Investment for October up $CDA 5.84 billion; average earnings declined 0.2% in October; number of employees fell 0.6% in October; Canadian GDP at factor cost rose 4.2% for October. The US reported final Q3 GDP at +3.1%; price index dropped 0.1% to 1.4%; durable goods orders rose 4.8% in November, up 4.3% with defence spending removed.

The Canadian 30 year bond shed 3 basis points to close at 5.97%. The US 30 year Treasury bond closed the week at 5.90, 7 basis points stronger. The Canada/US 30 year spread is 7 basis points, 4 basis points wider than last week. (A basis point is 1/100th of a percent.)

The North American equity markets continued to suffer from the Asian Flu, as the Holiday shortened week found traders scrambling against a tide of selling resulting from Asian woes. Firms with exposure to the Asian markets were hurt, particularly banks and high techs. Surprisingly, golds and oils helped hold the markets in, preventing a further decline.

The TSE managed to hold onto a small gain this week, closing 4.16 points better at 6539.50. The DJIA had a poor week, after a strong start, finishing off 76.98 points, or down 0.99%, at 7679.31. The other major North American exchanges posted similar performances over the week.

The Holiday shortened session this week, will only be exacerbated next week, as traders and investors sit on their hands until the new year is upon us. Many have decided to take their profits for this year and go home. Watch for thin markets, easily influenced by a single large order. Good trading.

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