Investors mull next move
North American stock markets ended the week near where they began amid a relatively quiet economic calendar.
In the US, retail sales saw a modest rise of .1% in January, the year’s first read on the all-important consumer spending gauge. The rise met expectations and marked the third straight monthly gain; both positive signs in light of the smaller pay cheques Americans started receiving as a result of the fiscal-cliff deal. The deal pushed payroll taxes from 4.2% to 6.2% leaving US workers a little lighter in the pocket, which could crimp spending. US jobless claims also brought modest good news as they decreased by 27,000 to 341,000 last week, which also beat expectations and provided further evidence of an improving labour market. In Europe, there was a disappointing read on the eurozone economy in Q4 as it shrank by 0.6% versus the previous three months. The fall was led by Germany and France, whose GDP shrank more than expected highlighting the fragility of forecasts for a eurozone recovery this year. The figure for the wider EU – all 27 member states – was a fall of 0.5%.
Meantime, the world’s major industrial nations – G7 – huddled this week to soothe mounting fears of a currency war. The nations pledged to avoid devaluing their exchange rates in the pursuit of stronger economic growth. The statement follows an outbreak of concern that Japan’s new campaign to beat deflation is an outright attempt to weaken the yen, an allegation its government again denied. Nations feared a 1930s-style spiral of retaliatory devaluations in which weak economies try to boost exports by driving currencies down. Finally, the US and EU announced their determination to launch trade talks this June. If an agreement can be reached it would create a trade alliance covering half the world’s economic output.
TSX, Dow down for the four-day period; S&P 500, Nasdaq up
For the four-day period, the TSX fell 80 pts. to close at 12,721 while the Dow shed 19 to finish Thursday at 13,973. On the plus side, the S&P 500 advanced 4 pts. to finish at 1,521 and the Nasdaq added 5 to end at 3,198.
Investors should be reducing bond exposure and shifting toward equities on any stock market weakness
- Equities - Himalaya Jain, Director, PAG, wrote: “Weak Canadian economic data last week was consistent with our thesis that prefers increased exposure to US equities. With limited macro economic releases and fewer corporate earnings reports this week, we think markets lack short-term catalysts to move higher. Short-term, trading-oriented investors may want to take profits and longer-term investors should consider this market pause as an opportunity to re-balance equity portfolios. As we remain constructive on equities over the medium term, we recommend buying on instances of market weakness.”
- Preferred - Tara Quinn, Director, PAG, wrote “For rate reset preferred shares we are now approaching the first reset date and we are advising investors to reduce exposure to those securities which have a low reset spread (< 2.00%) with a reset date in 2013. These securities have a high likelihood of extending past the initial reset date and could be reset with a lower dividend rate, thereby reducing share price. We have been highlighting TD Bank series “S” (TD.PR.S) and Bank of Nova Scotia series “Q” (BNS.PR.Q) as potential reduce candidates.”
- Portfolio strategy - Scotiabank GBM Portfolio Strategist Vincent Delisle says: “The US Q4 earnings season is coming in ahead of expectations as most S&P 500 companies are beating on top (58%) and bottom (69%) lines.”
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