TORONTO — After a steep decline last week that saw the Toronto Stock Exchange lose most of its gains since the start of the year, investors are expected to cast a wary eye on this week’s economic data, much of it coming from south of the border.
Among the numbers coming out this week will be April figures on retail sales, consumer prices and consumer confidence, all of which will begin to paint a picture of how the world’s largest economy is faring in the second-quarter.
“I would suggest that if these numbers do not strengthen the fundamental backdrop or the perception out there, this could be a one-day wonder,” Andrew Pyle, a wealth adviser at Scotia MacLeod in Peterborough, said of Friday’s 111-point rally on the TSX .
“Investors will say ’maybe growth is not as good as we thought, maybe we have priced in too much’ — and this mini downtrend that we’ve seen in stocks in the last week to two may extend a bit.”
Traders will also be focused on earnings from Canadian companies, including Tim Hortons (TSX:THI), Lundin Mining (TSX:LUN), Iamgold Corp. (TSX:IMG) and Canadian Tire (TSX:CTC).
Their earnings will be dissected for signs of how the overall Canadian economy is faring, said Jennifer Dowty, portfolio manager for Manulife Asset Management Ltd..
“It’s going to be a very interesting near term as the markets are going to respond according to the economic (news) and corporate earnings that are coming out in the next few weeks,” she said.
About half of the 248 companies that make up the TSX composite index have reported earnings so far this season. A majority, 39 out of 69, have beat analysts’ expectations, with 23 missing.
“It’s certainly positive, but I find that the big picture is really the overall sentiment — you can have a company that reports reasonable numbers, but if the whole market is in a downdraft and no one wants to step in and buy, the upside potential may be capped.”
Fears that economic growth is not as robust as once thought, the end of a U.S. Federal Reserve bond-buying program in June and moves by China and India to tighten interest rates have combined to spook investors, Dowty said.
“There’s a lot of profit-taking because there was such strong healthy gains across the board in the commodities that people, at the sign of some weakness, they’re going to take some profits off the table and it just snowballs.”
The S&P/TSX composite index finished the week down 378 points or 2.7 per cent at 13,566.6. And that was after the more than 100-point gain Friday after Statistics Canada reported the economy pumped out a surprisingly strong 58,300 jobs in April, which brought the unemployment rate down to 7.6 per cent.
Data from the U.S., also released Friday, showed employers there added 244, 000 jobs in April, the third straight month of gains and the biggest hiring spree in five years. But the U.S. unemployment rate rose to nine per cent because some people resumed looking for work.
Crude oil fell $2.62 to US$97.18 a barrel on Friday, capping a week-long sell-off on investor concern that slowing U.S. economic growth will undermine demand for crude.
Crude, at a 2 1/2-year high of almost US$115 late last week, tumbled nearly seven per cent on Thursday alone, mostly on a sharp rise in the U.S. dollar and a jump in applications for unemployment benefits.
Silver prices were down more than 20 per cent last week, taking other commodities down with them. The drop in silver came after the main U.S. metals exchange, CME Group Ltd., announced further hikes to margin requirements, amounting to an 84 per cent increase in the last two weeks.
Volatility in the sector spread to other areas since investors have been forced to sell other securities to meet higher margin calls.
Investors had been turning to hard assets in recent months to take refuge from a falling U.S. dollar and on optimism about global growth. Last week, two of the world’s fastest growing markets, China and India moved to hike interest rates to cope with inflation, prompting investors to fear that demand for resources in those economy could soon dampen.
In addition, the European Central Bank signalled that it would set aside another interest rate hike at its next meeting, which weakened the euro, taking the U.S. dollar higher and putting pressure on commodity prices, which are priced in the U.S. currency.
In contrast, resource-based currencies like the Canadian dollar, began to fall. The loonie lost about two cents in trading last week to close Friday at 103.41 cents US.