US economy running at full steam – maybe the end of interest rate declines and a bumpy road for Equities for the next few weeks ?

March 6, 2015

 

Weekly Statistics:

Today

Week Ago Year Ago

06-Mar-15

28-Feb-15

07-Mar-14

S&P TSX

14,952.50 15,234.34

14,299.08

S&P 500

2,071.26 2,105  1,878.04

DJIA

17,856.78 18,133

16,452.72

OIL

$49.78 $49.52

 $91.66

USD vs CAD

0.7945 0.7991

0.9022

Gold

$1,168

$1,214

 $1,341.50

The US economy added a robust 295,000 jobs in February, taking the country’s unemployment rate to lowest level in about 7 years. The median forecast in a Bloomberg survey of economists expected an increase of about 235,000. The unemployment level dropped to 5.5% from 5.7%, best since May 2008- Pre recessionary levels. Economists are now of the opinion that US economy could grow at 3% annual growth for the first time in a decade. This jobs report clearly points towards an improving and growing US economy, which is good news for equity markets. But, the increased confidence in US economy also led markets to speculate about a rate hike from Federal Reserve sooner rather than later. This in turn led to a sharp decline in equity markets with major indices like Dow Jones, S&P 500 and TSX down by about 1.5%. The Fed has always maintained that it would not rush into increasing the borrowing costs but financial commentators are of the opinion that a rate cut could be possible in mid 2015. Though the US economy has been posting solid gains in unemployment numbers, the wages of US workers are not raising as fast. The hourly wages rose at 0.1% or 3 cents to $24.78- a disappointment after an increase of 0.5% in January.

Meanwhile, the Canadian dollar sank after Canada reported its second highest trade deficit on record in January as the nation had to account for a slump in prices of oil shipments. According to Statistics Canada, the deficit widened to $2.45 Billion, doubling from a revised trade gap of $1.22 Billion in December. Economists had projected a deficit of $1 Billion. The loonie fell by almost half a cent to 79.48 USD. Total exports fell 2.8% in January, the biggest monthly decline in more than a year, while the imports were largely unchanged from December. As we discussed in our previous newsletter, the plunge in oil prices could reverse the fortunes of Canadian provinces. While Alberta has to bear the falling prices of crude oil, Ontario could benefit from a lower loonie which could give a boost to the province’s manufacturing industry.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch

 

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