TORONTO – Traders will return from the Canada Day holiday to start up a new half of the year, but will be dogged by the same issues that made for a volatile first half of 2012.
Despite some progress on Europe’s crippling debt crisis achieved at an emergency summit of EU leaders last week, investors aren’t likely to let it fade from the spotlight until more concrete steps are taken.
After 18 disappointing summits since the start of the debt crisis, Europe’s leaders appeared Friday to have finally come up with quick fixes and long-term plans that show they are serious about restoring confidence in their currency union.
Among other things, the plan allows European bailout funds to pump money directly into troubled European banks, rather than make loans to governments to bail out the banks. The move rescues the banks without putting strapped countries deeper in debt.
But Philip Petursson, director of institutional equities at MFC Asset Management said investors won’t be satisfied until there are more details and volatile trading will continue until such time.
“They’re looking at any positive news out of it and saying ‘hey, this is perhaps the first sign that they are looking to address the problem and that can only be a good thing’ … (but) it’s vague right now, it’s hope for the best and buy on that,” he said.
“This is a very, very complicated problem and it’s going to require somewhat of a complicated solution.”
Still, the news buoyed the TSX —if only for a short while, as previous rebounds on positive European moves have proved temporary.
The news out of Europe could continue to be the focus this week, which may also be a slow trading week with a Canadian holiday Monday and U.S. traders off Wednesday for Independence Day.
While North American data so far this year has been “fine,” and should continue to muddle along with at least some growth, days when there aren’t any meaningful economic reports or corporate news, leave traders to dwell on the macroeconomic climate, and right now the focus is Europe, Petursson said.
“I don’t think anything is going to change … and the volatility is still going to continue likely through the rest of the summer.”
This week’s economic news will be capped by the all-important reading on the job markets in June from both Canada and the U.S. expected Friday.
The consensus call for the U.S. is the addition of some 95,000 jobs, with the jobless rate holding steady at 8.2 per cent. That would be a big pick up from May’s 69,000 increase, but still a significant slowdown from the monthly gains of over 25,000 at the start of the year, noted a report from Capital Economics.
In Canada, economists are projecting a modest gain of about 5,000 jobs in June with the jobless rate holding steady at 7.3 per cent as labour force growth also remains tepid.
As we embark on the second half of the year, there’s not too much optimism about global growth prospects, noted Douglas Porter, deputy chief economist at BMO Capital Markets.
“Beyond the short-term concerns, the medium- to long-term growth outlook faces inevitable heavy government restraint across much of the developed world as well as daunting demographic challenges,” he said.
In Canada, a tapped-out consumer, fiscal restraint and weaker commodity prices — as well as the impact of a global slowdown “are scarcely the recipe for healthy growth,” Porter noted.
Last week also marked the end of the second quarter and that means companies will soon start to report second-quarter earnings, which will provide a fresh look at how corporations fared during the April to June period.
Chris Kuflik, ScotiaMcLeod wealth adviser in Montreal, said second-quarter earnings will be modest.
“I don’t think a lot of people are overly optimistic about the business climate, but they’re not overly pessimistic either,” he said.