Market insights
Market Commentary - March 5, 2010
Further signs of recovery drive TSX 3% higher on week, tensions over Greek debt ease
North American equity markets this week climbed to their highest points thus far this year as a series of upbeat economic releases provided further evidence the economic recovery in the U.S. is gathering steam.
Markets extended their gains Friday after data from the U.S. Labor Department showed U.S. employers shed fewer jobs than expected last month. Non-farm payrolls declined by 36,000 jobs in February and the jobless rate in the world’s largest economy held steady at 9.7%. Most economists had expected employers to shed 90,000 jobs and the jobless rate to climb to 9.8%.
Friday’s employment data followed new signs this week of accelerating consumer spending and retail sales in the U.S. as well as heightened activity in the U.S. service sector.
News of Greece’s renewed effort to put its fiscal house in order also buoyed global equity markets this week. The Greek government unveiled another US$6.5 billion worth of spending cuts and tax increases in an effort to ensure it meets an aggressive deficit cutting target by the end of the year. Member states of the European Union are also said to be working on an aid package should Greece struggle to refinance as much as US$27 billion of maturing debt within the next few months.
Canada’s S&P/TSX Composite index added 3% over the week ended March 5, 2010. The benchmark’s Industrials, Utilities and Materials sectors led the advance, climbing 4.9%, 4.2% and 4%, respectively. The benchmark’s Financials sector also enjoyed a solid week, adding 3.8%.
With this week’s rally, the TSX extended its advance from last March’s low to better than 58%. The TSX has now added 2% thus far this year.
Meanwhile, figures released this week showed Canada’s economy expanded at its fastest pace since 2000 in the final three months of 2009. Statistics Canada reported the nation’s economy surged at an annualized rate of 5% last quarter. Most economists had expected annualized growth of 4%.
As expected, policy makers at the Bank of Canada (BoC) this week left the Central Bank’s benchmark lending rate unchanged at 0.25% and pledged to maintain the trendsetting rate at its current level through the middle of the year provided there are no unexpected flare ups in inflation. Still, last quarter’s unexpectedly strong expansion – 1.7% steeper than the Central Bank’s own forecast -- sparked speculation this week that BoC policy makers may have to consider tightening sooner or more rapidly than expected.
South of the border, the S&P 500 index rose 3.1% over the week ended March 5, 2010. Materials producers led the advance, rising 5% on the week, while five other sectors all rose better than 3%.
With this week’s rally, the S&P 500 has now added 2.1% thus far this year.
Friday’s U.S. employment data came on the heels of a series of encouraging economic releases in the U.S. Commerce Department figures released earlier this week showed U.S. consumer spending rose at a real, seasonally adjusted rate of 0.3% last month to reach a 20-month high.
At the same time, data compiled by Retail Metrics Inc. showed sales at U.S. retailers rose in February at their fastest pace in 27 months. Sales at stores open at least one year climbed 4.1% last month.
Lastly, data from the Institute for Supply Management (ISM) showed activity in the U.S. services sectors rose last month at its fastest pace since December of 2007. The ISM’s non-manufacturing index rose to 53% in February, up from 50.5% a month earlier. Most economists had expected the index to rise to 51%.
In Europe, the Dow Jones Stoxx 600 index surged 4.6% over the week ended March 5, 2010. The benchmark’s Basic Resources and Automobile & Parts sectors led the broad-based advance, climbing 9.9% and 9%, respectively while seven of the benchmark’s other 17 sectors posted gains of 5% or better on the week.
The weekly advance propelled the Stoxx 600 into positive territory on a year-to-date basis. The benchmark has now risen 1.6% thus far in 2010.
Markets across Asia closed broadly higher this week, buoyed by upbeat consumer spending and retail sales data out of the U.S. The Dow Jones STOXX Asia/Pacific 600 ex. Japan index, a measure of market activity throughout the Asia/Pacific region, climbed 3.2% over the week ended March 5, 2010.
In Japan, the Nikkei 225 index added 2.4% on the week as new figures showed joblessness in the world’s second largest economy fell last month to its lowest level since March of last year. Japan’s Ministry of Internal Affairs and Communications this week reported the nation’s unemployment rate fell to 4.9% -- two-tenths of a per cent lower than most economists had forecast.
In China, the Shanghai Composite index slipped 0.7% on the week amid speculation the Chinese government could curtail spending in an effort to prevent runaway growth. Chinese Premier Wen Jiabao allayed some of those fears Friday when he pledged to maintain stimulus spending and easy credit conditions in light of weak global growth.
In the bond market, 10-year U.S. Treasuries fell sharply this week as traders fled the relative safety of U.S. government debt. Yields, which move inversely to prices, rose 10 basis points to close at a 3.69%.
Looking ahead to next week, investors await the latest data on U.S. retail sales and consumer sentiment.
Keith McLean, Vice President, Portfolio Manager, I.G. Investment Management, Ltd.
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