Weekly Commentary – Ending 10/28/2011

The week ending October 28th, 2011 saw a pronounced break from recent market weakness with major indices posting robust gains. The S&P/TSX, S&P500 and the MSCI World gained 4.8%, 3.8% and 4.2% respectively. This is the first time in weeks that all three indices finished the week substantially higher.

In Canada, retail sales rebounded higher with much of the increase attributed to higher gas and automobile sales. The Bank of Canada left the overnight rate unchanged at 1% with inflation projections remaining low into the second quarter of next year. Gross domestic product (GDP) projections were revised lower for the year, however, it projects Canada will still see positive growth for 2011 and expects it to increase by the second half of 2012.

The U.S. economy showed some positives signals in the third quarter, with the economy growing at its fastest pace in the past year. GDP rose at a 2.5% annual rate with an increase in consumer and corporate spending fueling the gains. An interesting piece of data to note is that U.S. GDP surpassed its pre-recession peak for the first time in fifteen quarters, which on average occurs in five quarters. This illustrates the depth of problems that were born out of the credit crisis in 2008/09.

Internationally, the most notable development came out of the European Union (EU), with an agreement on a deal to help solve the regions debt crisis. Leaders announced a multi-pronged solution with many details yet to be announced. The deal will increase the size of the European Financial Stability Fund (EFSF) and have private holders of Greek debt accept a voluntary “haircut” of 50%. Furthermore, Italy pledged to contain their debt and banks will have to lay out plans to boost their core tier one capital to 9% in order to promote financial stability.

The week ahead will see the release of Canadian GDP data for August and the unemployment rate for October. U.S. data will include a rate decision from the Federal Open Market Committee (FOMC), non-farm payrolls/ unemployment rate for October and non-manufacturing index for October.

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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