Traders to focus on earnings news, Fed stimulus intentions, latest growth data

TORONTO – There will be plenty for investors to ponder this week as the Canadian fourth-quarter earnings season kicks into gear.

Traders will also be looking to the Federal Reserve to try and glean the U.S. central bank’s intentions for carrying on with stimulus, while the week is capped with the U.S. non-farm payrolls report for January.

At the same time, the market will get the latest take on economic growth and Research In Motion Ltd. (TSX:RIM) unveils its new BlackBerry 10 product line in New York on Wednesday.

The TSX ended the week up 0.7 per cent, led by a five per cent run-up in the tech sector, reflecting the sharp climb in RIM shares. And positive earnings news helped push the Dow industrials up 1.8 per cent.

RIM stock ran ahead 12 per cent last week as investor enthusiasm continued to build ahead of the BlackBerry 10 announcement.

“There’s some good momentum there,” said Sadiq Adatia, chief investment officer at Sun Life Financial.

“Now it’s got to try to continue to deliver on that, otherwise people will lose their confidence and faith in the stock.”

At the same time, Adatia doesn’t think the announcement will launch RIM’s stock back into triple-digit levels again.

“There is room for RIM to move higher but it’s not going back to $100 or anything like that we’ve seen in the past,” he said.

“It got to a point where it was too low. It’s done some right things now (but) it has to continue to innovate, continue to put a splash out there, and not have any more misses. I think if it can do all those things, then it can start to trade again properly.”

Some of Canada’s biggest companies will be on investor radar this week.

Canadian Pacific Railway (TSX:CPR) and grocer Metro Inc. (TSX:MRU.A) report earnings results on Tuesday, while Potash Corp. of Saskatchewan (TSX:POT) and Canadian Oil Sands (TSX:COS) hand in numbers on Thursday.

In the U.S., the Federal Reserve wraps up its two-day meeting on interest rates Wednesday. No one expects the central bank to move on rates but traders will look for clues as to when the Fed could wrap up its latest round of economic stimulus.

The Fed minutes from the previous meeting, released Jan. 3, showed a split among members over how long to continue the stimulus, known as quantitative easing. It involves the Fed buying bonds to support the U.S. economy, a move aimed at keeping interest rates low.

Some thought the program should be slowed or stopped before the end of 2013 amid concerns that the bond purchases would destabilize the economy.

“Certainly we don’t see them opening the tap any wider in the near term,” said Peter Buchanan, senior economist at CIBC World Markets.

“But I think there is some expectation that, provided growth picks up (and) we get further improvement on the job front, they could begin to close it by year-end.”

Economists generally expect the U.S. economy to have created 153,000 jobs in January, slightly below December’s 155,000 reading.

“A driver is certainly construction,” Buchanan said. “We saw a nice solid gain last month.”

“Housing starts numbers are showing phenomenal momentum (and) the auto sector has been ramping up employment in the last couple of years,” he added.

Elsewhere on the economic front, economists expect data coming out Wednesday to show that the U.S. economy geared down sharply in the fourth quarter, with growth coming in at 1.2 per cent, much less than the third-quarter read of 3.1 per cent.

“The slowing will reflect three factors,” said BMO Capital Markets senior economist Sal Guatieri, “a reversal of temporary sharp gains in business inventories and defence spending, disruptions caused by hurricane Sandy and a decline in exports in part due to a deepening European recession.”

Meanwhile, Statistics Canada is expected to report Thursday that the economy grew by 0.2 per cent in November, which would be the highest gain in four months.

Last week, the Bank of Canada shaved three-tenths of a point off its projections for growth for both 2012 and 2013, to 1.9 per cent and 2.0 per cent respectively.