Weekly Wrap-Up September 8-12, 1997

Closing Numbers

The North American bond markets had plenty of supply, numbers and Fed speak to digest this week, but the market traded in a narrow range until US retail sales and producers price numbers were released at the week's end. Good news numbers showing productivity gains growing at a greater pace than unit labour costs (2.7% versus 0.5%), were overshadowed by supply and currency concerns. Federal Reserve Board Chairman Alan Greenspan's comments indicating that inflation is under wraps due to productivity gains, did little to impress the markets. The same can be said for Chicago Federal Reserve President Michael Moskow's comments proclaiming the inflation situation is not a factor at present. Mr. Moskow also reiterated comments heard out of the Fed earlier this year and late last year that the current measure of CPI is overstated by 1-1.5%. The good news did finally get to the markets Friday, with the release of US retail sales figures for August at +0.4% (versus +0.9% for July) and US PPI reporting its first advance in seven months, posting an increase of 0.3%, with core up +0.1%. The market stagged a relief rally based on the notion that the Fed FOMC meeting September, 30 will have no action associated with it.

The supply came to both sides of the border. The Province of Ontario came early in the week with $CDA 500mil 10 years, priced at 17 basis points back of the Canada curve. This was considered fairly priced, and moved well. The Government of Canada also came to market with $CDA 3.5bil 2 years, which were met with strong demand as reflected in the stronger than average 2.29:1 bid-to-cover ratio. The US bond market had to digest a significant amount of corporate debt issues over the week. The US corporate market saw over $US 7bil issued, resulting in some mid-week digestion problems. Issuers are rushing to market in an attempt to take advantage of relatively low financing costs before the Fed acts again.

The bond market traded in a heavy sluggish manner, digesting supply and shrugging off numbers until the Friday release, when a significant relief rally took both markets out on a high note. The Canadian 30 year bond finished the week at 6.55%, a 4 basis point improvement. The 30 year US Treasury bond shed 5 basis points on the week to close at 6.59%. The Canada/US long bond spread remains in negative territory at -4 basis points. (A basis point is 1/100th of a percent.)

The North American equity markets were mixed on the week as street rumours, and corporate statements regarding disappointing Q3 earnings took the wind out of several blue chip issues. The Nasdaq managed to establish two record closes early in the week before giving up some ground on earnings concerns. The tech heavy exchange was still the outperformer on the week posting a 0.83% increase. The TSE also managed to hold onto slim gains, increasing 22.88 points, or 0.34% on the week to close at 6766.10. The DJIA was not so lucky as damage done by the ever present earning concerns mid-week could not be over come with Friday's inflation benign numbers. The Dow closed the week down 79.45 points, or 1.02% at 7742.97.

Next week brings a host of economic data early, with Canadian manufacturing, wholesale and retail sales, and trade figures being released. The US will report CPI, real earnings, industrial production and housing starts, and 2 year and 5 year note auction announcements. Look for the markets to continue to trade in a choppy consolidative manner. The equity markets are being driven by earnings concerns, while the debt markets will be looking to find signs of wage inflation. Good trading.

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