Markets Pick Up, Anticipating European Developments

German Chancellor Angela Merkel returned from vacation last Monday, and she even came to Canada to meet with Prime Minister Harper. Now that many are back from vacation, European developments will probably govern market movements over the next few months.

For example, the U.S. stock markets and, by ricochet, our dollar benefited from Angela Merkel saying that she supports the plan by European Central Bank President Mario Draghi to buy European bonds. Last week the VIX, an index measuring implied volatility in the S&P 500, fell to its lowest level in five years. See our section on the loonie for a fuller discussion of the VIX and the events that may add volatility to markets over the next few weeks.

Canada
Canadian economic news will be few and far between again this week. The only indicator to be released this week and that merits mention is Retail Sales, due on Wednesday. Economists expect growth in consumer spending to have fallen in June, from 0.3% to 0.1%.

United States
The release of economic news south of the border begins on Wednesday with the FOMC Meeting Minutes. On Thursday, the New Home Sales statistic will be released. The U.S. is experiencing a very uneven recovery, with certain sectors showing good growth while others are stagnating. More new home sales would be a sign that consumers are confident about the state of their economy (employment situation, salaries, etc.).

On Friday we will have Durable Goods Orders for July; economists are forecasting a 0.4% hike from the last reading. With less than 2 weeks to go until Ben Bernanke’s eagerly awaited speech in Jackson Hole, Wyoming, this figure will be closely watched.

International
The week in international news starts this evening with the release of the minutes of the Reserve Bank of Australia’s latest meeting. It continues with Purchasing Managers’ Index data for China, Germany, France and the eurozone, all released on Thursday. Rumour has it that China is ready to adopt another expansionary measure, if this country’s figure falls below analysts’ expectations, then such rumours are sure to become more insistent. Also on Thursday Germany will release its GDP figure for the second quarter, and results will be released regarding the Consumer Confidence Index of the eurozone.

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