Weekly Commentary – Ending 01/20/2012

The week ending January 20th, was characterized by higher markets around the globe led by strong earnings and increasing investor confidence that the European debt crisis would be contained.

The S&P/TSX Composite Index gained 1.4% with eight of ten sectors ending the week with positive returns. The Bank of Canada left its benchmark interest rate unchanged at 1.0%, citing the possibility of a global economic slowdown and benign inflationary pressures. The outlook for the Canadian economy was stable. The high dollar continues to hinder exports; however, this should be offset by low financing costs domestically, which will benefit consumer spending and housing. Consumer prices in Canada rose by 2.3% year-on-year, which was slower than the 2.9% increase in November.

U.S. equities gained for the week on strong earnings announcements and economic data. The S&P 500 Index, Dow Jones Index and the Nasdaq gained 2.0%, 2.4% and 2.8% respectively. Existing home sales rose by 5.0% in December. However, housing starts fell by 4.1% in December, capping off the worst recorded year for single-family home construction. Once again, the recovery of the housing market remains riddled with obstacles. Consumer prices were essentially unchanged in December from November, with an increase of 0.1%. Lastly, U.S. industrial production rose in December by 0.4% month-on-month, which can be attributed to increased demand for business equipment.

European markets were positive for the week, as confidence grew that the European Union would be able to successfully manage the debt crisis. The German DAX gained 4.3%, France’s CAC gained by 3.9% and the U.K.’s FTSE gained 1.6%. The Eurozone inflation rate slowed in December to 2.7% from 3.0% in November. Construction output rose in November by 0.8% month-on-month, after three months of contraction. The rise was largely attributed to Germany.

Asian markets posted robust gains for the week. China’s Shanghai composite rose 3.3%, India’s Sensex gained 3.6%, Hong Kong’s Hang Seng gained 4.7% and Japan’s Nikkei gained 3.1% for the week. The Chinese economy grew at an annualized rate of 8.9% during the fourth quarter of 2011. However, it was the slowest pace of growth since 2009 as export demand declined. China’s industrial output grew by 12.8% year-on-year in December, supported by strong gains in the production of rolled steel and electricity.

Looking ahead, markets will focus on the Federal Open Market Committee economic update and rate decision, CDP figures for Q4, durable goods order and new home sales in the U.S. In Canada, investors will focus on retail sales.

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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