Economy on front burner this week: traders look to jobs data, rate announcement

TORONTO - Traders will be looking at U.S. jobs data at the end of the week for further clues as to how much this year's severe winter weather has depressed the American economy and employment.

"This is always looked at with some degree of trepidation and this will be no exception," said Bob Gorman, chief portfolio strategist at TD Waterhouse.

Job creation in January was a major disappointment with only 113,000 created that month. But much of the U.S. has laboured under severe weather this winter and traders largely have been willing to give the benefit of a doubt to those kinds of jobs numbers.

The expectation for February, for example, is that a modest 150,000 jobs were created.

Since the January data came out, other data have also suggested winter-related weakness, including a report out at the end of last week showing the U.S. economy only grew by 2.6 per cent in the fourth quarter, down sharply from the initial estimate of 3.2 per cent.

U.S. Federal Reserve chair Janet Yellen told senators last week that a number of data releases have pointed to softer spending than many analysts had expected but that it was difficult to discern how much that had to do with the weather.

"When you drill down into the numbers, a lot of it is fairly clear, some is weather and we will see some more of that," said Gorman.

"But people will start getting nervous if the data seems to represent a trend going forward. But I’m not too concerned — we’re holding to GDP growth in the US of 2.6 per cent, which is lower than quite a number of folks who expected three and change."

Canadian jobs data for February will also be released on Friday. Economists expect that about 17,000 were created during the month.

The other major economic event for the week happens on Wednesday when the Bank of Canada makes its next announcement on interest rates.

"Obviously any rate hike is far in the future," observed CIBC World Markets senior economist Peter Buchanan. Many economists don't expect the bank to move on upping rates from its one per cent level until early next year.

Buchanan thinks Bank of Canada governor Stephen Poloz will likely offer encouraging words about inflation, which in January came in at an annualized rate of 1.5 per cent, compared with a 1.2 per cent rise in December.

"They have some concerns in that area," said Buchanan.

"It’s moved a bit further away from the worrisome one per cent level. But we’re still probably not out of the woods yet."

He adds that markets will also be interested in seeing the central bank's assessment on how severe winter weather has impacted the Canadian economy. Data released on Friday showed that Canadian gross domestic product contracted a worse than expected 0.5 per cent in December, a month that saw severe ice storms in Ontario and Quebec.

Meanwhile, geopolitical anxiety centred around Ukraine had yet to make itself felt significantly at the end of last week.

The TD's Gorman observed that there are events that take place when traders get a bad case of nerves, avoid risky assets and seek safety. These include higher gold prices, falling equities and a flight to the U.S. dollar and American Treasuries. But none of these events have taken place.

"The markets are more less taking this in stride with the proverbial grain of salt because the view is that it won’t escalate into a big geopolitical event," he said.

"That could be proven right or wrong — stranger things have happened. But that’s what the market is saying at the moment."

The TSX finished last week up four points with the market pressured by sliding gold stocks. But the Dow industrials ran ahead 218 points or 1.36 per cent for the week.