Traders wary of fiscal cliff

Traders will likely be in a wait-and-see frame of mind this week as they look to some kind of progress from American politicians towards a vital budget compromise that would pull the economy away from a so-called fiscal cliff.

Traders will likely be in a wait-and-see frame of mind this week as they look to some kind of progress from American politicians towards a vital budget compromise that would pull the economy away from a so-called fiscal cliff.

They will also be anxious to see how American retailers fared over the weekend as the holiday retail season got into gear, and the first indication of how the Canadian financial sector performed over the last quarter.

North American stock markets racked up solid gains last week on optimism that American lawmakers can put aside steep ideological differences and come together on a compromise to avoid steep spending cuts and tax increases which would be triggered by the first of the year.

Traders were also encouraged by millions of Americans flocking to shopping malls Thursday night and Friday to scoop up bargains.

The TSX gained 2.82 per cent after falling 2.6 per cent the previous week while the Dow industrials were up 3.34 per cent after losing almost two per cent.

Also supporting markets was a sharp runup in Research In Motion shares (TSX:RIM)(NASDAQ:RIMM). The stock surged $2.38 or 25.8 per cent to 11.61 during the week, with gains concentrated last Thursday after a National Bank Financial analyst upped his share price target. That move came amid rising optimism about RIM’s new BlackBerry 10 operating system, which will be unveiled at a Jan. 30 event along with its new line of smartphones. It’s viewed as a make or break product launch for Research In Motion.

Negotiations over avoiding the fiscal cliff will likely dominate market sentiment since failure to avoid those tax hikes and spending cuts would represent such a shock to the economy that it would likely go back into recession.

“The markets gave a pass last week because of the (Thanksgiving) holiday and because President Obama was overseas,” said Colin Cieszynski, market analyst at CMC Markets Canada.

“Now, they’re going to want to see them getting back to work and see signs they are actually working towards a deal and they can get something done by the end of the year. The posturing had better not last long, the markets are going to be right on them I think.”

Markets had tumbled in the seven sessions after the Nov. 6 election as the results of the contest left the political status quo largely intact, raising worries that Republicans and Democrats wouldn’t be willing to compromise.

But sentiment took a positive turn as the initial meetings between the two sides Nov. 16 showed politicians in a more conciliatory mood.

Meanwhile, Royal Bank (TSX:RY) kicks off a string of earnings by the big Canadian banks. It’s reporting on Thursday.

Analysts surveyed by Thomson Reuters expect Royal to turn in $1.26 per share of adjusted earnings on $7.4 billion of revenue for the three months ended Oct. 31.

Generally, analysts don’t have huge expectations for this quarter amid a slowing Canadian economy and, more particularly, a cooling off of the real estate market, which would impact the money banks make from mortgages.

“On the mortgage side you could start to see a bit of a slowdown, even if it doesn’t show up in the numbers people will be looking to see if there are any comments on it for going forward,” said Cieszynski.

“Some of the earnings may get trimmed a bit as we go forward.”

And he doesn’t expect the banks to dole out any extra money to shareholders since the big five Canadian banks raised their dividends last quarter.

The rest of the big banks report next week.

Also capturing traders’ attention will be the launch of public trading of Canada’s oldest company, Hudson’s Bay Co. (TSX:HBC) Monday on the Toronto Stock Exchange.

Its return to the public stock market values the retail company at $17 a share, or about $2 billion in total. HBC says it plans to sell a total 21 million shares — about one-fifth of the company’s stock — raising about $365 million through an initial public offering.

An IPO is a rare and risky move during this volatile time for stock markets, so eyes will be watching to see whether traders believe the company is worth the $17 per share it is asking.

In early trading last week, on a so-called “if and when issued basis,” HBC shares ended the week at $16.85 per share.

On the economic front, the major event of the week is the September reading on gross domestic product. Statistics Canada is expected to report the economy grew by 0.1 per cent during the month. Such a reading would translate into the economy growing by 0.9 per cent at an annual rate during the third quarter.

“A sharp deterioration in net exports, slicing more than two (percentage) points from growth, and emerging weakness in housing are expected to weigh on GDP,” said BMO Capital Markets senior economist Benjamin Reitzes.

In the U.S., investors will look to October durable goods, the S&P/Case-Shiller home price index and the Conference Board’s latest take on consumer confidence on Tuesday.

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

Just Posted

The Hub on Ross has announced it has permanently closed. (Photo courtesy The Hub on Ross Facebook page)
The Hub on Ross in Red Deer to permanently close

The Hub on Ross in Red Deer permanently closed on Wednesday. “The… Continue reading

There were 410 COVID-19 cases recorded in Alberta Wednesday. (File photo)
Alberta records 410 new COVID-19 cases Wednesday

Central zone dropped to 160 active cases

Shaun Isaac, owner of Woodchucker Firewood in Trochu, is awaiting a new shipment during a firewood shortage in the province. All of the wood he has left is being saved for long-time customers who need it to heat their homes. (Contributed photo).
Firewood shortage in central Alberta caused by rising demand, gaps in supply

‘I’ve said “No” to more people than ever’: firewood seller

The Red Deer Senior Citizens Downtown House reopened earlier this month, after closing in March due to the pandemic. (Photo by Sean McIntosh/Advocate staff)
Red Deer Senior Citizens Downtown House reopens

The Red Deer Senior Citizens Downtown House was closed for months due… Continue reading

Guy Pelletier, vice-president of the Red Deer region for Melcor Developments. (Contributed photo).
Melcor has to redesign new neighbourhood after Molly Banister decision

City council disagreed with administration’s recommendation to scrap road plans

Alice Kolisnyk, deputy director of the Red Deer Food Bank, says the agency expects an increase in demand as the COVID-19 pandemic continues. Every new subscription to the Red Deer Advocate includes a $50 donation to the food bank. (Photo by BYRON HACKETT/Advocate Staff)
Support the food bank with a subscription to the Red Deer Advocate

The community’s most vulnerable members are always in need of a hand,… Continue reading

Sergio Santos, right, of the Philadelphia Union, loses the race to the ball against goalie Quentin Westberg of Toronto FC during the first half of an MLS match Saturday, Oct. 24, 2020, in Chester, Pa. THE CANADIAN PRESS/AP-Charles Fox/The Philadelphia Inquirer via AP
Frustrated coach Greg Vanney defends banged-up Toronto FC after second straight loss

Frustrated coach Greg Vanney defends banged-up Toronto FC after second straight loss

Los Angeles Dodgers manager Dave Robert and third baseman Justin Turner pose for a group picture after defeating the Tampa Bay Rays 3-1 to win the baseball World Series in Game 6 Tuesday, Oct. 27, 2020, in Arlington, Texas. Sporting venues and games certainly have super-spreader potential but that risk can be minimized with buy-in from all involved, experts said Wednesday. The subject moved into the spotlight Wednesday after L.A. Dodgers third baseman Justin Turner tested positive for COVID-19 at the World Series. THE CANADIAN PRESS/AP, Eric Gay
Sports’ buy-in needed to prevent super-spreader potential: experts

Sports’ buy-in needed to prevent super-spreader potential: experts

In this image released by Fox, from left, Doug E. Doug, Malik Yoba, Rawle D. Lewis, John Candy and Leon are shown in a scene from the film "Cool Runnings." THE CANADIAN PRESS/AP-HO, Fox
Not cool: Jamaican bobsledder wants thief to return stolen shell to Calgary bar

An original member of the Jamaican bobsled team featured in the 1993… Continue reading

Speedskater Ivanie Blondin trains at the Olympic Oval in Calgary on October 17, 2016. Canada's long-track speedskating team is chasing ice to Fort St. John, B.C. The country's top speedskaters have been without ice in Calgary's Olympic Oval since early September because of a mechanical failure there. World champions Ivanie Blondin, Graeme Fish and Ted-Jan Bloemen are among 50 people including coaches and support staff travelling to northern B.C. for a 15-day training camp starting Nov. 1. THE CANADIAN PRESS/Jeff McIntosh
Canadian long-track speedskating team finds temporary home in B.C.

Canadian long-track speedskating team finds temporary home in B.C.

The "Great One," Wayne Gretzky, left, holds up a banner bearing his number with some help from his friend Joey Moss during a jersey retirement ceremony at Skyreach Centre in Edmonton on Firday, October 1, 1999. Former Oilers captain Kelly Buchberger remembers how a familiar friend would come "barrelling" into the visitors' dressing room when he returned to Edmonton. THE CANADIAN PRESS/Jeff McIntosh
Wayne Gretzky reflects on the life, legacy of Joey Moss: ‘He gave parents hope’

Wayne Gretzky reflects on the life, legacy of Joey Moss: ‘He gave parents hope’

Players' sticks are shown during a World Championships Group A hockey game between Russia and Denmark, in Moscow, Russia, on Thursday, May 12, 2016. A $30-million settlement of three class actions over the failure to pay junior hockey players the minimum wage has been thrown into jeopardy after three judges refused to sign off on the agreement. THE CANADIAN PRESS/AP, Ivan Sekretarev
Junior hockey employment lawsuit on thin ice; judges refuse to OK $30-million deal

Junior hockey employment lawsuit on thin ice; judges refuse to OK $30-million deal

Alberta Premier Jason Kenney answers questions at a news conference in Calgary on Tuesday, Sept. 15, 2020. Labour union leaders are urging Albertans to sign up to protest Premier Jason Kenney’s government through rallies and demonstrations and, if necessary, provincewide general strikes. THE CANADIAN PRESS/Todd Korol
Alberta union leaders launch protest website against Kenney government

Alberta union leaders launch protest website against Kenney government

Most Read