Bernanke speech highlight of the week, Draghi working on bond-buying program
Financial markets meandered much of week with a modest sell-off Thursday as most participants awaited the next moves from central bankers. First up is the highly anticipated speech from Fed Chairman Bernanke who’s in Jackson Hole, Wyoming with other officials for the bank’s annual gathering. The speech, due to be aired Friday at 10 am ET, will be highly scrutinized to see if the Chairman announces or provides any clarity on the Fed’s next move regarding further stimulus measures. Many analysts believe the Fed could do more to bolster the US economy which remains sluggish amid a painfully slow recovery.
More evidence of the slow speed of the US recovery came mid-week with the release of revised GDP data. For Q2, the US economy grew an annualized 1.7% - a slight revision up from earlier estimates of 1.5% - but still short of the 2% notched in Q1. Consumer confidence numbers also fell this week according to the Conference Board’s index of consumer attitudes. The economic bright spots on the week came in the form of rising consumer spending which ticked up .4% while single-family home prices gained in June for the fifth consecutive month, which topped forecasts. Pending home sales also rose with July’s figures the best in two years.
In Europe, Bernanke’s counterpart at the ECB – Mario Draghi – had been expected to attend the meeting in Jackson Hole but begged off at the last minute saying he’s too busy working out the details of a bond buying program for Spain and Italy. And it was Europe that partially triggered sells Thursday as a euro-zone economic-sentiment indicator fell to the lowest level since late 2009. Further weakening came from reports that Spain wants more clarity on bailout conditions before it seeks financial help. Meanwhile, Slovakia's prime minister said he saw a 50% chance the euro zone will break up.
North American stocks lose ground amid uninspired trading
The TSX slid back below the 12,000 mark by market close Thursday returning it to negative territory for the year. With one trading day left in August, the benchmark index now stands at negative .57% ytd. For the four-day period covered in this report the TSX fell 196 pts. to close at 11,886. South of the border, the Dow lost 157 pts. to end Thursday at 13,000, the S&P 500 lost 12 pts. to close at 1,399 and the Nasdaq shed 21 pts. to end at 3,048.
Equity rally over-extended, add to cyclicals on weakness
- Equities. Steve Uzielli, Portfolio Manager, Portfolio Advisory Group (PAG) wrote: “Equity markets appear to be overbought in the short term but may continue to “melt up” in the absence of significant news flow; important U.S. macro data will be released in the first few days of September.”
- 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. Scotiabank GBM Portfolio Strategist Vincent Delisle says: “worsening Chinese data should prompt authorities to accelerate easing measures, which could help Chinese growth recover later in Q4. Overall, chief among the factors driving the summer pick-up in sentiment is the belief that policy easing will intensify notably in Europe and China.”
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