With the Olympics in full swing, it’ll be nice to watch something positive come out of Europe for once.
Regardless, Europe was the source of some enthusiasm on Thursday as European Central Bank President Mario Draghi made some comments that caught the market’s attention. He said, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Economists jumped all over his words. The ECB will meet this week to set interest-rate policy and various stakeholders within Europe continue to battle over what should be done. Was Draghi signaling that stakeholders are finding common ground?
Needless to say, traders ran with the comments and sent global markets higher in what was shaping up to be a week of poor performance. Stocks rallied, the Euro strengthened, European bond yields fell, and commodity prices advanced, including gold.
Of course, last week’s gains will only hang around if the ECB actually backs up the talk at its regular meeting this Thursday.
Corporate earnings provided an interesting mix of results this week. As most companies continued to meet expectations on the earnings line, with perhaps a bit of weakness on the revenue line, we actually witnessed a rare miss by Apple.
While results were not as good as the Street would have liked, many analysts attributed the lower demand to customers waiting for product upgrades coming in the next two quarters, so strong earnings results are still expected for the remainder of the year.
Considering Draghi’s comments provided support for commodity prices, the TSX Index regained some losses and finished the week with a positive return. This support also saw the Canadian dollar appreciate against the U.S. dollar. The loonie’s strength over the past few months has been impressive considering broader global macro concerns.
Our dollar finished out the week less than a cent away from reaching parity with the U.S.
TRADING WEEK AHEAD
Hopefully the eyes of the world will be on Europe next week because of the Olympics and not for economic reasons. However, there are a number of important meetings and data releases coming in the next seven days that the market will be watching very closely.
First off, policy makers will take center stage as the Federal Open Market Committee will get together on Wednesday. Ben Bernanke is expected to keep interest rates unchanged, but there is an expectation that the Fed may hint at further monetary stimulus in the coming months.
Not to be outdone, the European Central Bank and Bank of England will have their meetings on Thursday. The ECB cut interest rates at its last meeting, so investors will be curious to see what the central bank has in store especially following President Draghi’s comments from Thursday regarding the Eurozone.
If nothing comes of the meetings, investor interest will turn quickly to the U.S. employment report due out Friday. Economists are forecasting the creation of 100,000 jobs in July — certainly not spectacular, but still an improvement on the 80,000 created last month.
The unemployment rate is expected to stay at 8.2%. Other important indicators coming next week include the Case-Shiller Home Price Index on Tuesday, the ISM Manufacturing Index on Wednesday and the ISM Non-Manufacturing Index on Friday.
While most Dow components have already reported Q2 earnings, we will still see some of the heavyweights such as Pfizer, Kraft Foods and Procter & Gamble provide us with second quarter results. In Canada, large caps such as Talisman, Agrium, Enbridge, Great-West Lifeco and TELUS will take center stage.
Did you know?
At 14 ounces this year, a pure gold medal in London would have cost about US$22,400.