FIRST QUARTILE ECONOMICS

Capital Markets Weekly

Monday, April 13, 1998

INTERNATIONAL EQUITIES: The S+P 500 hit new highs during the past week but posted a net decline of 1.1 percent. The big story was the Dow with its first close above 9000 after the Citibank/Travelers news, but after that it was generally downhill for a net gain of 0.1 percent on the week. The Russell 2000 fell 1.2 percent on the week while the NASDAQ fell 1.9 percent. The Japanese market rebounded smartly, by 6.2 percent on the week following the 7.3 percent fall the prior week.

U.S. DOLLAR: The big dollar sold off sharply versus the Yen as the Bank of Japan is apparently upset by the recent Yen weakness. There was a natural cooling of dollar strength heading into the announced details of Japan’s latest fiscal package ($/Yen eased to about 131 versus 135 the prior week) and upon digestion of the tax cut details the Yen was back around 133. At that stage the Bank of Japan began selling what is believed to total about $5 billion through Thursday and Friday. Hence the dollar ended the week at 128.65 Yen versus 135.18 the prior week.

So, what lies ahead for the dollar? I think the Yen is going down because fundamentals say so. The BoJ will have to keep selling large blocks of dollars in order to keep the Yen stable. Traditionally, the BoJ does not have to exercise its muscle very much in the forex markets to make its point, but that is likely to change now. FX markets smell blood here and even the BoJ will give up at some stage.

U.S. BONDS: Bonds corrected moderately after last week's strong gains. Some of the weakness is attributable to the currency reversal while fixed income participants do not have the collective bullish bias necessary to produce a consistent follow-through to lower yields just yet. Another fine PPI report was seen for March, with a decline of 0.3 percent and 0.0 percent ex food and energy, but this almost seemed to be old news for the market upon its release on Thursday.

CANADIAN EQUITIES: The TSE 300 rose by 0.1 percent on the week with a split of a 0.0 percent change in the TSE 100 and a 2.6 percent rise in the small cap TSE 200. Financial Services led the way with a rise of 3.6 percent in sympathy with the bank sector in the U.S. The Citibank/Travelers merger was the catalyst. Nine of the 14 subsectors declined on the week.

CANADIAN BONDS: Domestic bonds lost marginal ground on the week and spreads to the U.S. improved by 7 basis points in the 30-year area. The only data of note was the March employment report that produced an 18,000 rise in jobs on the month but was more like 40,000 once the public sector was excluded. Still, no one is or should be concerned about tight labor markets or wage pressures in Canada.

CANADIAN DOLLAR: The currency drifted lower on the week and closed at 1.4257 versus 1.4197 a week earlier. Nothing especially negative is afoot for the currency, it just seems to be consolidating after its recovery from January lows.

April 13, 1998

By Frank Hracs -First Quartile Economics

Capital Markets Weekly Archives

Back to Markets Page

Back to Investors' Corner

Back to The Investment Strategy Page

The Financial Pipeline Homepage