Gestion Férique Market Review
December 9, 2011
Title: Markets strong despite turbulence
North America continued showed continued strength during early December, fuelled by concerted central bank actions, and positive economic data that was released here and in the United States.
The strong stock markets are somewhat surprising given the considerable turbulence surrounding global economic events. Uncertainty regarding the European debt crisis continues to raise eyebrows, particularly in bond markets, where spreads on Italian, Greek and other sovereign debt issues have risen to unsustainable levels relative to German rates. Even Germany, Europe’s strong man, hasn’t been immune judging from weak demand for its latest bond issue.
Things got even stickier after Standard & Poor’s Ratings Services lowered the credit ratings of many of the world’s largest financial institutions. This and other uncertainties have caused considerable problems for many of them when rolling over their outstanding liabilities.
However concerted action by the world’s major central banks went a long way towards easing those concerns, thus adding fuel to an equities rally, which saw the Dow Jones Industrial Average gain close to 1,000 points.
The monetary authority moves included a US Federal Reserve and the European Central Bank arrangement to ease European purchases of US dollars, which has been hampered due to rising premiums on interbank loans. The ECB also cut its collateral and margin requirements for borrowers, while the Chinese central bank reduced its banks’ reserve requirements.
These moves come on the heels of the release of relatively positive economic data, which have gone a long way towards calming fears of a possible recession both here in Canada and in the United States. For example the most recent American jobs report showed that more than 120,000 new posts were created during November, which brought the unemployment rate down to 8.6 percent. This comes on top of a positive recent US third-quarter GDP growth number (+2.0%), which although it was marked down slightly, was nevertheless the strongest performance so far this year.
Here in Canada, the rebound in real GDP was especially strong, with growth coming in a 3.5% during the third quarter, compared to a 1.5% decline during the second quarter. That said, analysts believe that much of the economy’s recent strength stemmed from meeting pent up demand caused by temporary factors earlier in the year, such as supply disruptions which hampered automotive sector supply chains.
Canadian job creation for its part has also slowed during recent months after an especially strong start of the year and housing starts slipped during November as analysts had been expecting, though they remain strong relative to overall demographic demand.
Beyond that, market watchers are focused on two traditional yearend trends: tracking Christmas shopping data (Black Friday sales during the season’s first weekend in the US came in strong) and tax-loss selling.
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Peter Diekmeyer Communications Inc.