by Zubin Driver
April 12, 2010
Through the last two weeks of March markets have quietly inched upwards. April began with a shortened week that ended on a positive note in anticipation of strong employment numbers out of the US. Strong numbers they were, as 162,000 people found work in March, the most monthly hires in over two years. January and February's employment numbers were also revised upwards. Jobs are now being added rather than lost, and seem to show further evidence, along with improved manufacturing, consumer confidence, and home sales, of further private sector economic improvement.
That's the private sector. In the public sector, the week before last was all about sovereign risk. It began with the passage of Barack Obama's health care bill. Initially, on the Monday morning after the bill was passed, futures were down significantly, and one had the fearful feeling that markets were recoiling at the possibility of a U.S. death by deficit. Yet, after a weak open, the markets recovered, and later that week Europe announced that its members had agreed on the outlines of a bailout plan for Greece. At the current moment, the market is ignoring large government debt levels, despite their disconcerting presence.
For now, the markets are relentlessly trending up, and it appears that negatives on the debt side of both private and public sector ledgers, are being offset by real growth in some countries' economies. Providing a welcome validation for the rise in equity markets beyond simple excess liquidity.
Par for a new course?
For sports fans this week, par was of course associated with The Masters, but 'parity' has been a hot topic in the currency world, as the Canadian dollar has touched 'par,' or USD 1 twice this week. Prior to the crash in 2008, as oil and other commodities raced upwards, the loonie touched USD 1.10 before plummeting back to the high 70 cent range.
Yet the trends that began before the crash may have solidified in its aftermath. Emerging economies, particularly China and India, have bounced back to a stronger relative position in global finance, while Europe and America are more indebted. Suppliers of commodities, such as Canada and Australia, reap the benefits as a large part of the world's population improves its standard of living. In this 'new world order,' in which relative positions of power are shifting, the loonie's ability to buy 1 US dollar may indeed become 'par for the course.'
Barrels and Bullion
As the transition into spring takes hold, the season for firming oil prices usually begins. So far, this spring is no exception as oil prices have just broken out through the $84 level, which has been a ceiling since the fall. Usually, when such a breakout sustains itself above the ceiling that previously held it in check, the subsequent price appreciation can be significant. Strong oil prices, of course, speak to greater energy consumption and thus expanding economies, so perhaps the current breakout can be taken as some confirmation of the economic improvement discussed above.
Interestingly, gold is also strengthening at the moment, which, if the move holds, is in contrast to its usual seasonality, in which it bottoms in August and peaks in March. Gold and the companies that produce it have been climbing recently; last week the price of gold broke through $1140 for the first time since mid-December, with a corresponding rally on large volume for gold producing stocks. Perhaps sovereign debt risk, especially with respect to some European countries, is reflecting in gold prices, as investors sell the Euro and move to considering gold as a real alternative currency. Perhaps as well, with the real prospect of a return to economic expansion on the horizon, the fear of inflation may finally hold merit for the first time since markets crashed in the fall of '08.
Zubin Driver
Investment Advisor
(W) 604 643-7608 / (F) 604 643-7606
Email: zubin_driver@canaccord.com
Canaccord Wealth Management
Attention: Zubin Driver
P.O. Box 10337 Pacific Centre
2200 - 609 Granville St.
Vancouver, B.C. V7Y 1H2
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