Weekly Commentary – Ending 12/02/2011

The week ending December 2nd saw strong gains in equity markets around the globe. A surprise policy announcement intended to increase liquidity in financial markets, better than expected U.S. employment data and loosening of reserve requirements for Chinese banks helped to fuel the gains.

The S&P/TSX Composite Index rallied 5.3% with all sectors gaining for the week. Notable contributors were the energy and materials sectors. The Canadian economy expanded in the third quarter driven by a jump in exports, with gross domestic product (GDP) increasing to a 3.5% annualized rate. This follows a revised second quarter contraction of 0.5%. The unemployment rate rose in November to 7.4% from 7.3% in October.

U.S. equities posted strong gains as a result of progress on the European debt crisis and positive economic data. The S&P 500 Index, Dow Jones Index and the Nasdaq were up by 7.4%, 7.0% and 7.6% respectively. The unemployment rate declined to 8.6%, from 9.0% in October, with retailers increasing hiring. Moreover, manufacturing activity increased with the Institute for Supply Management’s factory index rising to 52.7 in November, from 50.8 in October, which is owed to gains in orders.

European markets saw exceptional gains with optimism that Europe is taking decisive action to resolve the debt crisis. The DAX, CAC, and FTSE gained 10.7%, 10.8% and 7.5% respectively. In response to the sovereign debt issues, six major central banks announced they would reduce the cost of emergency dollar borrowing, which would increase liquidity in financial markets. However, there are still headwinds for many states. The Eurozone index of economic sentiment fell by 1.1 points in November, which marks the ninth monthly decline in a row. This reading shows worsening conditions in most sectors in the economy. Furthermore, Eurozone industrial orders declined, led by Germany and France.

The theme remained consistent in Asia as the Nikkei gained 5.9%, the Hang Seng gained 7.6% and India’s Sensex gained 7.3%. The only exception was China’s Shanghai composite that lost 0.8% due to deteriorating economic data.

Although, many Canadians will focus on the Bank of Canada’s rate decision in the week ahead, much of the markets attention will be focused on the European Union Summit. Many are looking for decisive action to help stem the sovereign debt crisis from escalating and threating the survival of the Euro.

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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