Euro-zone escapes technical recession, US data brightens, thin trading volumes
Markets searched for direction this week amid mixed economic data, uncertainty over further economic stimulus and below-average trade volumes.
In Europe, GDP figures released Monday showed five countries in technical recession (two quarters of back-to-back negative growth) but the region, as a whole, escaped the definition showing zero, rather than negative growth. Stagnation – as opposed to contraction – in France and razor-thin growth in Germany is what kept the region out of technical recession. German GDP increased 0.3% in the second quarter beating expectations. In France, GDP was flat compared with the first quarter but topped forecasts for a slight contraction.
The US economy balanced the scales by delivering more upbeat news in the form of rising retail sales which jumped in July for the first time in four months. July's gain well outpaced expectations and was the biggest rise since February. The positive sales numbers built on better-than-expected jobs data last week and good building permits numbers for new homes which jumped to a four-year high Thursday. Overall, it appears markets are content to simply sit things out until there’s more news on the stimulus front as NYSE and NASDAQ trading volumes for August are the lowest they’ve been since 2006.
TSX closes above 12,000, Dow and S&P 500 little changed, NASDAQ chugging along
In Canada, the TSX ended the four-day period with a solid advance Thursday as both oil and gold stocks moved higher. Crude is now trading around the US$94 a barrel mark after dipping below $80 earlier this summer while gold stocks have started to move even as the price of the metal is range bound at about US$1,600 an ounce. For the four-day period, the TSX moved 142 pts. higher to close at 12,032 clearing the 12k plateau for the first time since spring, and pushing the year-to-date return back into positive territory.
In contrast, the Dow and S&P 500 indexes largely moved sideways this week with the blue chip US index advancing 43 pts. over the four days to settle at 13,250. The S&P 500 edged higher by 10 pts. to end at 1,415 while the Nasdaq outdid both percentage-wise closing at 3,062, up 42 pts.
Longer-term investors should be buying equities selectively
- Equities. Steve Uzielli, Portfolio Manager, Portfolio Advisory Group (PAG) wrote: “in terms of where we see more attractive valuations, we believe longer-term investors should be buying selectively, particularly in the Energy and Materials sectors in Canada, and U.S. Industrials, Technology, Health Care, and Financials.”
- Fixed income. Andrew Mystic, Associate Director, PAG, highlights the following recommendations: “Term Call – given the recent decline in yields, we no longer see value in the mid-to-long end of the curve and recommend investors stay short at this time. Sector Call – underweight Canada, overweight Municipals, Provincials and Corporates. Currency Call – we recommend Canadian investors remain in Canadian dollars for their fixed income holdings. Alternative Strategies – new call – marketweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.”
- Portfolio strategy. Scotia Capital Portfolio Strategist Vincent Delisle says: “in an environment dominated by wide shifts in sentiment, the ongoing technical reversals in U.S. long-term bond yields and the TSX index raise the odds of an extended risk-on trade heading into Q4.”