Turbulent week ahead for trading

The Toronto stock market likely faces more tough slogging in the weeks ahead as resource stocks lose ground alongside commodity prices amid a slowing global economy.

TORONTO — The Toronto stock market likely faces more tough slogging in the weeks ahead as resource stocks lose ground alongside commodity prices amid a slowing global economy.

And the other major TSX pillar, financials, will likely find gains elusive amid a slowing economy and housing sector.

At the same time, New York markets could be in for more volatility as traders try to gauge the intentions of the U.S. Federal Reserve as far as easing up on stimulus.

This week is also thin for economic data, with traders looking to U.S. retail sales and Canadian manufacturing shipments.

North American stock markets had very different outcomes last week as the Dow industrials edged up 0.87 per cent amid a stronger than expected reading on American job creation last month. The showing left the blue chip index up 16 per cent for the year.

But the TSX had yet another disappointing week, losing 2.14 per cent, led by declines in energy and base metal stocks, leaving the main index down about 60 appoints year to date.

“Unless the resource sector, unless commodities mount a significant recovery and rally in the last half of the year, it’s difficult to come up with scenario where the Toronto stock market does a lot better, let alone catches up the U.S.”, said Andrew Pyle, portfolio manager at ScotiaMcLeod in Peterborough, Ont.

The resource sector has been dealing with a double whammy of chunks of the eurozone stuck in recession while Chinese economic growth is well off the highs or recent years. The International Monetary Fund in late May trimmed its growth forecast for China this year from eight per cent to 7.75 per cent due to weaker global demand.

“What’s happening on top of that, you have Canadian banks that are being looked at less favourably than U.S. banks, you have a lot of analysts out there now saying US banks offer better potential for growth than Canadian banks and that’s a big chunk of the TSX,” added Pyle.

The U.S. markets have their own particular headwinds to face in the form of the fallout from comments by Fed chairman Ben Bernanke last month that the U.S. central bank might pull back on its $85 billion-a-month bond-buying program — known as quantitative easing — if economic data, especially hiring, improves significantly. Other Fed officials have spoken about a winding down of asset purchases sooner.

Those remarks set off a wave of volatility across stock markets, as QE has kept interest rates and bond yields low and also helped fuel a strong rally on stock markets this year.

But rising speculation about an easing of Fed purchases of bonds has also had the effect of depressing bond prices and raising yields, leaving the benchmark U.S. 10-year Treasury at about 2.15 per cent, up sharply from around 1.6 per cent at the beginning of May.

“I think that’s what really spooked the market, (and it) just shows how dependent the bond market and stock markets have been on the whole quantitative easing program,” said Pyle.

Rising bond yields are negative on two fronts.

One, they can depress equities because investors feel they don’t have to invest in stocks to get a decent return.

The other concern is that they could put the blocks to a steady bright spot in the American economy this year — the housing market

U.S. home prices soared 12.1 per cent in April from a year earlier, the biggest gain since February 2006, while sales of previously-occupied homes ticked up to a 3 1/2 year high that month.

But data released last week shows rising bond yields already affecting mortgage rates.

The average U.S. rate on a 15-year fixed mortgage rose above three per cent for the first time in a year, while the rate on the 30-year fixed loan approached four per cent.

“And I think this is where the market needs to get a bit more concerned,” said Pyle.

“If an increase in mortgage rates causes the U.S. housing recovery to stall or slow, and if bond yields get to a level that are now attractive alternatives, that could induce a retracement.”

Housing has been one of the key pillars for the U.S. economy this year and Pyle observed that “if you were to take housing out of the equation, growth would have been lower. So if you lose housing . . . that raises another issue for stocks over the summer.”

On the economic front, traders are looking for U.S. retail sales in May to have increased by 0.4 per cent on top of a 0.1 per cent rise in April amid stronger auto sales.

And in Canada, Statistics Canada is expected to report that manufacturing shipments rose by 0.3 per cent during April after declining by 0.3 per cent in March.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Alberta has 1,910 active cases of COVID-19 as of Wednesday. Red Deer is reporting five active cases, with 108 recovered. (File photo)
Red Deer reports 25th COVID-19 death

415 new cases identified provincially Saturday

Erika Fetterly, owner of EFP Studios, recently launched the Let Them Have A Voice campaign. (Contributed photo)
Central Alberta photographer’s campaign aims to give youths a voice

An Innisfail photographer is giving a platform to young central Albertans so… Continue reading

More than 120,000 Albertans have signed up to get the COVID-19 vaccine in the first two days of appointment bookings. (Photo courtesy Alberta Health Services Twitter)
Alberta Health Services apologizes after seniors struggle to book vaccine appointments

The CEO and president of Alberta Health Services is apologizing after seniors… Continue reading

Red Deer’s Kyle Moore, 26, will be a houseguest on Season 9 of Big Brother Canada. (Photo courtesy Big Brother Canada)
Red Deer man will be a houseguest on Big Brother Canada

A Red Deer man will be a houseguest on the upcoming season… Continue reading

Red Deer Public Schools says that in the absence of additional funds from the provincial government, there was no consideration of using alternate classroom sites in the district. (AP Photo/Gregory Bull)
Red Deer Public Schools launches online engagement process

Red Deer Public schools is seeking community input to help ensure a… Continue reading

An arrest by Red Deer RCMP is facing online scrutiny. No charges have been laid and the incident is still under investigation. (Screenshot of YouTube video)
Red Deer RCMP investigating violent arrest caught on video

Police say officer ‘acted within the scope of his duties’

Ottawa Senators goaltender Matt Murray (30) stands in his crease as Calgary Flames left wing Andrew Mangiapane (88), left to right, defenceman Rasmus Andersson (4), Matthew Tkachuk (19), Mikael Backlund (11) and Mark Giordano (5) celebrate a goal during second period NHL action in Ottawa on Saturday, Feb. 27, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Calgary Flames beat Ottawa 6-3 to end Senators’ three-game win streak

Flames 6 Senators 3 OTTAWA — The Calgary Flames used a balanced… Continue reading

Toronto Maple Leafs centre Auston Matthews (34) falls on his knees as he skates around Ottawa Senators defenceman Artem Zub (2) during third period NHL hockey action in Toronto on Thursday, February 18, 2021. The Maple Leafs will be without star centre Auston Matthews when they take on the Edmonton Oilers Saturday. THE CANADIAN PRESS/Nathan Denette
Toronto star Auston Matthews won’t play as Leafs face Oilers

EDMONTON — The Maple Leafs will be without star centre Auston Matthews… Continue reading

Crosses are displayed in memory of the elderly who died from COVID-19 at the Camilla Care Community facility during the COVID-19 pandemic in Mississauga, Ont., on November 19, 2020. The number of people who would have died from a COVID-19 infection is likely to be much higher than recorded because of death certificates don't always list the virus as the cause of a fatality, experts say. THE CANADIAN PRESS/Nathan Denette
Death certificates don’t accurately reflect the toll of the pandemic, experts say

The number of people who would have died from a COVID-19 infection… Continue reading

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a UHN COVID-19 vaccine clinic in Toronto, Thursday, Jan. 7, 2021. A single dose of Pfizer-BioNTech's COVID-19 vaccine is barely enough to cover the average pinky nail but is made up of more than 280 components and requires at least three manufacturing plants to produce. THE CANADIAN PRESS/Nathan Denette
From science to syringe: COVID-19 vaccines are miracles of science and supply chains

OTTAWA — A single dose of Pfizer-BioNTech’s COVID-19 vaccine is barely enough… Continue reading

Wetaskiwin RCMP say a Maskwacis man died after he was struck by a vehicle. (File photo by Advocate staff)
Clare’s Law in Saskatchewan used handful of times; Mounties review their role

REGINA — A first-of-its-kind law in Canada meant to warn those at… Continue reading

The Magpie river in Quebec is shown in a handout photo. THE CANADIAN PRESS/HO-Boreal River MANDATORY CREDIT
Quebec river granted legal rights as part of global ‘personhood’ movement

MONTREAL — With its kilometres of rapids and deep blue waters winding… Continue reading

Thorough sanding of a table top is usually the first step to renewing a finish. Wax contaminants can sometimes still remain on a surface like this after sanding. Cleaning with rubbing alcohol and a rag gets rid of these contaminants without leaving a residue behind. (Photo by Steve Maxwell)
Houseworks: Fixing wood finishes

Q: How can I stop polyurethane from beading up on a mahogany… Continue reading

Most Read