North American stock markets could be hard pressed to gain momentum this week as investors wade through another raft of data that will likely reinforce the view that the U.S. and Canadian economies are stumbling badly.
Statistics Canada releases economic growth figures for June on Wednesday.
There have already been predictions from private sector economists that the economy had virtually no growth in the April-to-June period and may have contracted slightly.
In the U.S., investors take in the Conference Board’s latest reading on consumer confidence Tuesday and the Institute for Supply Management hands in its latest reading on the health of the manufacturing sector in August on Thursday, while the week ends with the U.S. government’s release of its non-farm payrolls report for August.
Stock markets finished last week positive as buyers picked up stocks beaten down during a sharp loss on markets the previous week on worries that the U.S. economy may be slipping into recession and a lack of confidence that European leaders can get a handle on the government debt crisis.
Markets advanced despite some disappointment that Federal Reserve chairman Ben Bernanke didn’t unveil any new measures to keep the economy on track during a widely anticipated speech at an economic conference in Jackson Hole, Wyo.
But investors found reassurance as he said that the Fed’s scheduled meeting on interest rates next month will be expanded to two days instead of just one to allow for a “fuller discussion” on what the central bank could do.
Economists expect that the Canadian GDP for June will show that growth was close to zero in the second quarter.
“While much of Canada’s economic woes over the second quarter largely reflect weak U.S. demand and a lofty Canadian dollar, some of the softness was also due to temporary factors,” said a commentary from TD Bank.
“The Canadian auto sector was particularly hard hit by supply disruptions in the wake of the Japanese earthquake.
“Meanwhile, the energy sector experienced a number of short-lived shutdowns in the wake of bad weather and fires in Alberta.”
The New York-based Conference Board is expected to hand in data showing deteriorating consumer confidence, reflecting intense volatility on stock markets for much of August.
The Conference Board of Canada reported last week that its consumer confidence index fell 6.6 points in August to 74.7, the lowest since July 2009.
Economists pointed to other weak consumer confidence data from earlier this month where the widely watched University of Michigan’s confidence index fell to its lowest level in 31 years.
“You have to go back to the early 1980s recession when we were facing large job losses, double-digit inflation, interest rates, before you saw confidence that depressed in the U.S.,” said Sal Guatieri, senior economist at BMO Capital Markets.
Expectations are low for the ISM manufacturing index on Thursday, with economists expecting that the index fell below the 50 mark during August, which signals contraction in the sector.
“Probably to 48,” added Guatieri.
“That would indicate the manufacturing sector contracted in August but not the economy. You have to get to a weaker number, around 42, 43 before the economy dries up. But mind you, anything below 50 is certainly not good news because the manufacturing sector has been an economic stalwart.”
Meanwhile, the non-farm payrolls report won’t provide any lift for markets after the American economy managed to crank out just 117,000 jobs in July and only 46,000 in June.
“We think payrolls will grow just 80,000,” said Guatieri.
“We’re just hoping that we see at least modest job growth in August given all the drama in equity markets and concerns about the fiscal outlook that month.”
Investors expected another mixed picture from the financial sector this week after Bank of Montreal (TSX:BMO) breezed past expectations, but earnings from National Bank (TSX:NA) and Royal Bank (TSX:RY) failed to impress investors.
“And I suspect we will continue to see the same from the other three,” said Colin Cieszynski, market analyst at CMC Markets Canada.
“Because obviously even into July (the end of the quarter) you were starting to run into issues with the U.S. economy, and even the Canadian economy seems to have been slowing down and the markets have been so volatile and the outlook has been difficult for banks.”
Scotiabank (TSX:BNS) reports Tuesday, CIBC (TSX:CM) on Wednesday and TD Bank (TSX:TD) hands in earnings data on Thursday.