Weekly Commentary – Ending 11/04/2011

The week ending November 4th, 2011 saw equities decline in almost all markets. Economic concerns emanating from Europe and the U.S. Federal Reserve’s lowering of growth estimates dragged on major indices both domestically and abroad. The S&P/TSX, S&P500, DAX and Nikkei, finished the week -0.9%, -2.5%, – 6% and -2.8% respectively.

In Canada, a mixed bag of economic data helped the TSX finish the week stronger than its peers south of the border. Gross Domestic Product (GDP) for August showed a strong month over month increase of 0.3%, which was reinforced by upward revisions to GDP in July, from 0.3% to 0.4%. Much of the increase can be attributed to a 2.8% month over month increase in output within the energy sector. However, Friday’s labour data pointed to weakening in employment growth. The report showed that 54,000 jobs were lost in October, which pushed Canada’s unemployment rate to 7.3% from 7.1% in September.

In the U.S., equity markets were under pressure throughout the week.  The Federal Reserve reported on the state of the economy, which noted that improvement in economic growth and unemployment rates remained stubbornly low and European debt problems posed downside risks. However, the 3rd quarter showed signs of economic strengthening with an improvement in private sector jobs data and acceleration in Gross Domestic Product growth to 2.5% annually. Interest rates were left at near zero and will likely remain there throughout mid-2013. The reserve updated forecasts for future economic growth, inflation and employment. GDP, adjusted for inflation, is expected to rise by 2.5% to 2.9% next year, and growth in 2013 should fall between 3% and 3.5%. Moreover, inflation forecasts were little changed for 2012 and 2013, with officials projecting price increases close to long-run goals of 1.7% to 2%. Lastly, the employment rate was projected to range between 8.5% -8.7% for 2012 with a drop to 7.8% -8.2% in 2013.

Internationally, the focus remained on the Eurozone debt crisis, which took another turn for the worst last Monday when Greek Prime Minister George Papandreou announced a surprise referendum on tough austerity measures. This was met by stiff opposition from domestic and international leaders, with French President Nicolas Sarkozy affirming that the terms of the Greek bailout were non-negotiable. However, by Thursday, Papandreou recanted his call for an election and reduced the uncertainty around Greece’s debt issues.

European data showed increasing pressures on European economies. The Eurozone’s unemployment rate rose to 10.2% in September, from 10.1% in August. Furthermore, Italy’s unemployment rate increased to 8.3%, from 7.0% in August.  Amidst the turmoil, the European Central Bank (ECB) ushered in new president, Mario Draghi. Mr. Draghi wasted no time showing markets he was willing to take decisive action with a surprise 25 basis point cut in the ECB interest rate, which brings the rate to 1.25%.

The week ahead will see the release of International trade data in both Canada and the U.S.  Moreover, Canadian housing starts for October will be reported.

This commentary is published as an information service for clients.  This commentary is not intended to provide, and should not be construed as providing, individual financial, tax or investment advice.  The information contained herein is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed.  Opinions expressed herein by the author and third parties may not necessarily reflect those of Craig & Taylor Associates and Insurance Agency Ltd.


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