TORONTO — Commodity prices driven by higher by unrest in Libya and the Middle East and the last of Canada’s big banks to report its first-quarter earnings are expected to drive the Toronto stock market this week.
“I think what we’re seeing is fundamentals are trumping any noise out there”, said Phillip Petursson, director of institutional equities at Manulife Asset Management.
“Economic data is positive, earnings are very positive. So company results are fantastic and support higher levels in the markets.”
At the same time, the an escalating civil war in Libya will continue to attract investor attention.
There are real concerns that the unrest could spread to other oil-rich countries in the Middle East, but so far, the uncertainty hasn’t dented investor enthusiasm for a stock market rally that started last summer.
Crude finished last week around US$104, up about 16 per cent over the last two weeks to a point where investors are starting to worry about how higher prices could affect the global recovery.
There’s no indication of prices going substantially below these levels and Petursson thinks, if anything, these higher prices will stick.
Countries in the Middle East will need to use higher oil prices to finance social reforms, he said.
“They will do it from increased production or tighten up production until the price hits whatever they want so they will back into the price,” he said, adding he has already adjusted where he thought oil would trade this year based on recent events.
“The low end might have been US$70 (but) I find it hard to believe we would see that, I think the low end might move up to US$80.”
Gold stocks have also done well this past week as investors looking for a safe have pushed bullion to a record high of US$US$1,437.70 in the middle of last week before closing slightly lower by Friday.
Meanwhile, Bank of Nova Scotia (TSX:BNS) reports its first-quarter earnings on Tuesday.
The financial sector was instrumental in the TSX racking up a gain of about 1.4 per cent last week as Bank of Montreal (TSX:BMO), Royal Bank (TSX:RY) and TD Bank (TSX:TD) beat expectations. TD also boosted its dividend, raising hopes for the rest of the sector.
“Scotiabank was the other bank which was felt widely to give a dividend increase so if they actually come out with a dividend increase and some decent numbers then that will certainly help the market,” said Gavin Graham, global strategist Excel Funds Management.
On the economic front, the major Canadian report of the week is Friday when Statistics Canada releases the February employment report.
Economists expect another solid month of gains, with job creation coming in at about 22,000.
“The job gain is expected to be firm enough to trim the unemployment rate a tick, after it took a surprising two steps upward to 7.8 per cent in January amid the largest monthly rise in the labour force in the past 25 years,” said an economic commentary from BMO Capital Markets.
In the U.S., investors will be looking to the February reading on retail sales.
Data that came out at the end of last week pointed to surprisingly strong sales gains but the gains are anything but widespread.
Economists expect American retail sales rose last month by one per cent following a 0.3 gain in January.
“The fact is consumers are still being cautious,” said Graham.
“And worries are growing that rising gasoline prices could discourage shoppers’ spending in the spring.”