United States
• It was a particularly turbulent week for financial markets. On Monday, the S&P 500 was down 6.6%, but is poised to end to week only 1.5% lower.
• In an attempt to shore up confidence in the economy, the Fed replaced its promise to keep rates low for an extended period with a conditional commitment to leave interest rates unchanged through mid-2013.
• Retail sales and initial jobless claims were both stronger than expected and point to a modest acceleration in Q3 growth.
Canada
• Global financial markets were put through the wringer this week – there were some up rallies, but mostly lows. The S&P/TSX composite index remains down so far in August.
• The apparent crisis of confidence that permeated markets came from all angles: (1) the ramifications of Standard and Poor’s downgrade of the U.S. government; (2) lingering concerns about the debt crisis in Europe and whether big players like France will be swept up in the fiscal troubles plaguing the continent; and (3) disappointing international trade numbers which have raised the risk of a Canadian economic contraction in Q2.
• In this environment, the Bank of Canada (BoC) is put in a difficult position. With the Fed on hold until mid-2013, the BoC is likely unable to raise rates by more than one percentage point over the next two years.
Courtesy of TD
