Weekly Wrap-Up November 24-28, 1997

Closing Numbers

The North American bond markets were little changed to slightly weaker over the past week. The Canadian market is suffering from a weak currency, which the Bank of Canada attempted to defend with a 25 basis point increase in the over-night rate, to 4.00%. The markets received this with mild amusement and then ran at the currency again. The low for the Canadian dollar occurred in February 1986, at 1.4442, or 69.24 for the FX challenged. The Canadian bond market has been hurt by continued weakness in the $CDA, and the threat that Japanese institutional investors will sell $CDA denominated holdings to prop-up sagging balance sheets at home. Japanese Finance Minister Yasuo Matsushita, indicated that the ministry was prepared to utilize dollar denominated investments to inject cash into the ailing economy. The continued turmoil in the Asian markets has caused the health of Asian corporate balance sheets to suffer. Many firms in Asia utilize equity positions in other firms as assets on the balance sheet. When the value of the Nikkei drops below the 16,000 level, many institutions experience difficultly with the strength of their financial health, through the repatriating of funds from foreign investments a modicum of strength re-appears. The US market had a lethargic week, as trading was interrupted mid-week, for the Thanksgiving Holiday, and had no real reason to get going again. The turkey hangovers held back any significant investor related activity on the week.

Economic data coming to the market this week re-affirmed the economic strength of both the Canadian and US economies, with little signs of inflation on the horizon. With the currency devaluations in the Asian markets, and the soft tone in the commodities markets, deflation is a growing concern for the Canadian economy. In Canada, net foreign investment registered at $CDA 4.1bil, a decrease of $CDA 4.0bil for September, while for the same month retail trade expanded 0.3%. This should negatively impact the Canadian current account. Canadian weekly earnings increased 1.9%, while hours worked remained unchanged at 31. The industrial price index in Canada decreased 0.3% month-over-month.

It was a fairly light week for numbers in the US market as traders and investors alike took Thursday off to celebrate Thanksgiving. Early closes on Wednesday and Friday kept activity fairly thin. Economic data of interest this week in the US included consumer confidence, which grew 4.9 pints to 128.3; existing home sales which were 2.1% greater. US GDP was reported at +3.3% for Q3, which was down 0.2%, durable goods orders were down 0.3%, all due to a decline in military spending. Personal Income grew 0.5%, as did personal consumption.

For the week, the Canadian 30 year bond weakened in price, raising the yield 6 basis points to 5.97%. The US market, on a holiday shortened session was unchanged at 6.07%. The Canada/US 30 year spread moved to -10 basis points from -16, reflecting the weakness in the Canadian dollar, and concerns over the health of the overall Canadian economy.

The North American equity markets continued to show weakness, as the Asian flu has not worked its way through the system as of yet. Investors are attempting to determine what the true economic consequences of the Asian meltdown will be on domestic firms' earnings going forward. Firms such as domestic utilities and conglomerates with limited offshore exposure, and robust dividends have been attracting investment dollars, while financial institutions and commodity based firms have worn the goat horns for the week. Interest rate uncertainty in Canada, as well as the country's reliance on commodity based exports has continued to hurt the market over the past week. Asian countries which import Canadian raw materials are certain to pull back their demand as domestic factors affect the Asian business environment, hurting the commodity based exporters. Although, this effect is probably being exaggerated in the markets.

The TSE posted a very disappointing showing on the week declining 3.86%, or 261.15 points, to close at 6512.78. The continued weakness of base metals, lumber and gold - which closed under $US 300 this week - have all hurt the major Canadian exchange. In the US, the holiday shortened session could not hold the markets in positive territory. The DJIA closed down 57.94 points, or 0.74%, at 7823.13. The other major North American exchanges also closed lower on the week.

Next week brings NAPM, construction spending, new home sales, productivity, manufacturing orders, and the ever important non-farm payrolls. The markets continue to feel heavy. The choppy nature of the market should continue, until the Asian flu has had its symptoms mitigated. Long-term, value-based investment strategies are still the most sound. Good trading.

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