Investors brace for more volatility

Investors should prepare themselves for more volatility as markets look to a number of important economic releases in hopes of greater clarity on how North American and European economies are faring.In Canada, the key data for the week will come on Tuesday when the monthly GDP report for July is released. Economists are expecting gross domestic product to remain unchanged at 0.3%, an indication that the Canadian economy has slowed somewhat since the first half of the year.“We lost some of the momentum we saw in the late spring,” said Peter Buchanan, a senior economist with CIBC World Markets. Analysts expect the gains to come from strong car sales that have boosted manufacturing and increased export demand, while wholesale volumes and retail spending will prove a weight.If predictions on GDP are correct, the numbers are expected to have a negative effect on the loonie, which has been brought down to the 90-cent range in recent weeks.Meanwhile, traders are expecting Canada’s merchandise trade surplus for August to narrow to $1.8-billion from $2.6-billion in July when Statistics Canada reports on Friday. Strength is expected in crude oil exports and domestic car sales.In the United States, markets will look for reassurances from the latest payrolls figures, also out on Friday. Analysts expect to see a gain in September, believing that the disappointingly low August figure was just an anomaly.Expectations are that there was a gain of 213,000 jobs in September, compared with 142,000 in August.“Most of the advance indicators we look at are pretty positive,” said Derek Holt, vice-president of Scotiabank Economics. “The initial jobless claims have been quite low and the job vacancies remains very elevated so that’s a sign of business confidence when it comes to hiring — the fact they have so many jobs they’ve been unable to fill so far.”“So there’s all this type of pipeline momentum in the U.S. jobs market that leads me to think that the August disappointment was a bit of an aberration against a still positive trend,” Holt said.If the figures meet expectations, it will quell some concerns that the U.S. Federal Reserve may have about the state of the overall labour market, which it has cited as a key factor in its rate decisions.Since the Great Recession of 2008-2009, the Fed has pumped trillions of dollars of stimulus into the economy through its bond-buying program, which has kept short-term interest rates low. That, in turn, has helped buoyed stock markets and allowed businesses to refinance their debt at lower rates and increase spending.The U.S. central bank has signalled that it will completely wind up its bond purchases by the end of October and most economists expect a rate hike by mid-2015.As this occurs over the next few months, investors will have try to remain steadfast through the volatility, said Holt. “There will be a lot of volatility going around because it’s the exit phase for Fed policy,” he said. “I think if we see some nervousness in the equities market, it will be relatively short term against a long-term positive trend.”That may come as relief to investors, who endured a large number of ups and downs over the last few weeks, including a big drop on Thursday that saw TSX drop more than 200 points. Even Wall Street wasn’t spared from the turbulence. All three indexes — the Dow Jones, Nasdaq and S&P 500 suffered through their steepest declines in two months on Thursday.Some of that was recouped on Friday, with big triple-digit gains on both the Dow and the TSX, although both also ended the week lower —the TSX down 1.56 per cent and the Dow off almost one per cent.Meanwhile, the focus will be overseas on Thursday when the European Central Bank holds its latest meeting. ECB president Mario Draghi is expected to provide more detail on whether the bank will implement quantitative easing to help some of the Continent’s slumping economies. Earlier this month, the ECB said it would cut interest rates and was planning other stimulus measures.Canadian Press

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