Weekly Commentary – Ending 11/11/2011

The week ending November 11th, 2011 saw mixed results for equity markets around the globe. Continued economic concerns emanating from Europe weighed down markets in the face of some improving economic data. The S&P/TSX, S&P500, DAX and Nikkei, finished the week -1.1%, 0.8%, 0.7% and -2.5% respectively.

In Canada, Finance Minister Jim Flaherty released a fall economic outlook as the world anxiously watched developments on European debt problems. It was noted that escalation in European credit woes could lead to slower growth domestically.  With this in mind, the target budget balancing deadline was extended to 2015-2016 in order to account for a decline in government revenues and the potential for future stimulus requirements. On a positive note, Canada recorded its first merchandise trade surplus since January 2011, with a surge in energy exports accounting for a majority of the gains.

In the U.S., equity markets managed to finish the week in positive territory with stronger than expected economic data. The U.S. Labour Department reported that jobless claim applications at 390,000, which were 10,000 less than expected. Furthermore, the U.S. trade deficit fell by 4%, from $44.9 billion to $43.1 billion, which highlighted an improvement in the trade balance. On a side note, it is interesting that on a year to date basis, the S&P500 has outperformed the S&P/TSX by approximately 11%. This can be attributed to, among other things, strong corporate earnings in the U.S. and Canada’s exposure to global commodity demand.

Internationally, Europe was once again the center of attention, however, the spotlight shifted from Greece to Italy. Markets around the world dropped heavily on news that Italy’s majority government headed by Silvio Berlusconi broke down. Subsequently, Italian 10 year bond yields spiked to a Euro area high of 7.45% before retreating later in the week on news of Berlusconi’s resignation. Initial reports suggested that Mario Monti, an economist and a previous EU competition Commissioner, would be named Prime Minister.  In other news, the European Central Bank (ECB) cut growth forecasts for its member economies for 2011 and 2012. It expects growth of 1.5% in 2011, revised down from 1.6% and growth of 0.5% in 2012, down from 1.8%.

China reported annual inflation of 5.5% in October, which was above the government target of 4%. However, relative to last month, the consumer price index (CPI) had dropped the most in two years, falling 0.6%. Moreover, with inflation moderating and global growth sputtering, China may have some room to stimulate targeted portions of its economy with loosening of fiscal and monetary policy.

The week ahead will see the release of manufacturing sales and CPI data in Canada, as well as CPI, industrial production, housing starts and retail sales in the U.S.

 

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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