Weekly Wrap-Up December 29, 1997 - January 2, 1998

Closing Numbers

The North American bond markets finished the week strong, on the back of a weaker NAPM figure, indicating a general slowing of the US economy. This may be a sign that the US Federal Reserve Board may not be in a hurry to raise short-term interest rates in the near-term. The strong showing by bonds was on holiday thinned trading volumes. With the New Years celebration falling mid-week, there were few senior traders on the desks of many dealers.

Economic data released on the week did little to influence the markets, save for the NAPM figures released Friday. Earlier in the week the US released existing home sales which dropped 0.2%; consumer confidence in December rose to 134.5; leading indicators rose to 140.6; and the NAPM figure fell 1.9 to 52.5. The NAPM release showed a decline in prices and an increase in exports, indicating a healthy manufacturing sector, with limited signs of price driven inflation.

The Government of Canada 30 year bond finished the week at a record low yield of 5.88%, 9 basis points better than last week. This is the strongest that the long bond has been in Canada since the government began issuing the security. The Canadian bond market was helped out by a recovery by the ailing Canadian dollar, as technical stops were triggered Tuesday, which saw the currency gain strength into Friday's close. The US market had little conviction, rising 2 basis points on the week to close at 5.92%. The Canada/US 30 year spread has moved back into negative territory at -4 basis points. (A basis point is 1/100th of a percent.)

The North American equity markets brought in the New Year on a positive note, rallying into Friday's close. Most players on the street were sitting out the end of the year, enjoying the Holiday Season. As a result, thin volumes and easily moved markets prevailed. Some of the fundamental nature of value is returning to the equity markets as symptoms of the Asian Flu begin to subside. News that major international banks would allow South Korea to roll some of its short-term debt obligations in an effort to come up with a long-term solution, proved positive for the markets.

The TSE finished the year 13% higher, while the DJIA posted the third +20% year in a row, a record for the exchange. The Dow posted a 23% return for the year adding to last years solid growth. On the week the TSE finished at 6711.38, up 171.88 points, or 2.63%. The DJIA posted a 3.72% gain, closing at 7965.04, better by 285.73 points. Both the Nasdaq, and the S&P 500 showed gains of better than 4% for the week.

Next week brings a more realistic trading environment as traders and investors try to get out of Holiday mode, and return to the fun and excitement of trading. The big number to watch for next week is the US non-farm payrolls figure released on Friday. This is a key indicator of underlying wage inflation, in an already tight labour market. Good trading.

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