| This week on the Markets: • Even if U.S. consumers are not very confident, they sure are spending. Retail sales shattered expectations in February with a 0.3% gain, the fifth increase in seven months. This performance was all the more remarkable given that the February data were negatively impacted by the blizzards that hit the U.S. East coast. If we exclude motor vehicles and gasoline, retail spending surged 0.8%, the second largest monthly increase in a year. There is a lot of momentum in the U.S. economy and we are confident that earnings will continue to beat expectations through H1 2010. • The Canadian economy created 60K full-time jobs in February and the unemployment rate decreased to its lowest level since April 2009. Although the statement by Statistics Canada showing a 159K jobs creation since July against a total job destruction of 417K during the recession is true, it is nonetheless misleading. Jobs for the cohort aged 25+, that is 85% of all employment, are within striking distance of their pre-recession peak (only 0.5% or 70K jobs). So, even if total employment is 1.5% below its pre-recession peak, the picture is brighter than it seems since the bulk of the employment losses are centered in the 15 to 24 years old cohort. In this context, it is not surprising to see the overall wage bill at a new record high, almost 1% above the pre-recession peak and growing strongly for three quarters now. The Bank of Canada must now ask itself serious questions about the state of the underlying inflationary pressures and the size of the output gap in Canada. • Although commodities initially plunged amid concerns over rate hike in China, prices managed to recover in NY session. However, probably dragged by static stock market movement, energy prices traded generally within a tight range. WTI crude oil price ended the day flat at 82.11. Recent price movement suggests that the trading range of the front -month contract has shifted up to 75-84 from 70-80, reflecting positive demand expectations from the market. We did not find much industry-specific news that supported price yesterday other than OPEC's mild upgrade on oil demands. Positive retail sales and a weaker dollar weren't enough to keep oil prices above the stubborn $83 a barrel threshold for long. Prices rose earlier in the day after the Commerce Department said total retail sales edged up 0.3% in February, renewing optimism about the economy. But they later tumbled in line with the Dow, which is up marginally on the day. • US trade deficit narrowed to $37.3B in January from $40.2B a month ago, while the market had anticipated an increase to $41.0B. Trade deficits narrowed as decline in imports outpaced that in exports. Details in the report show that imports fell for the first time in 5 months while exports the first time in 9 months. These by all means indicate slowdown in growth after the economy emerged from recession. • The euro is trading within a tight range as investor’s appetite for risk alternates. European Union policymakers injected a cold dose of reality into talk of creating a European monetary fund, stating the principle of no bailouts for countries in financial trouble must stay. Eurogroup Chairman Jean-Claude Juncker said that such a fund should protect only the interests of the entire Eurozone and not any individual member of the currency bloc. ECB governing Council member Yves Mersch said central banks were not in the business of budget bailouts. |