Traders will take in the latest economic growth figures for both Canada and the United States while hoping for hints about the pace of interest rate hikes in the U.S. when the Federal Reserve makes its next rate announcement at mid-week.
The TSX ran ahead 470 points 3.3 or per cent last week to recoup the losses of the previous two weeks. The advance was led by a seven per cent run-up in the energy sector as oil found some temporary stability around the US$45-a-barrel mark.
The sector was also fired by the Bank of Canada's surprise, quarter-point cut in a key rate to 0.75 per cent, which in particular benefits resource companies with most of their cost base in Canada.
Despite the partial recovery of the much battered energy sector, some analysts say prices in the oilpatch are still too rich.
"We're still underweight in the energy space because we actually think stock prices reflect a higher oil price than what is achievable over the medium term," said Patrick Blais, managing director and portfolio manager, Manulife Asset Management.
There were also questions at the end of the week over whether the death of Saudi Arabia's King Abdullah would affect the kingdom's oil output.
But analysts think Abdullah's successor, Prince Salman, — 79-years-old and himself in poor health — is unlikely to ratchet up production.
Crude is down a good 40 per cent from the end of November when Saudi Arabia announced that it would not cut production to support prices that started falling last summer amid a global supply glut.
The drop in crude is not expected to materially affect Canada's November GDP data, which is being released Friday. But there were other headwinds that month, leaving CIBC (TSX:CM) to forecast a slight 0.1 per cent rise in GDP, reflecting disappointing reports for manufacturing and wholesale sales. It also noted that a major oilsands facility was down for the back half of the month.
CIBC said future GDP reports will detail how the collapse in oil prices is affecting the economy.
"Further out, the downdraft from oil will create issues for Canada as companies pare investment and as provincial governments scale back spending plans."
In the U.S., fourth-quarter GDP is expected to come in at an annualized rate of 3.1 per cent, down from a five per cent pace in the third quarter.
Meanwhile, the Fed makes its next announcement on interest rates on Wednesday.
There has been speculation that the U.S. central bank would start moving rates upward around mid-year but there now is some doubt about the pace of rate hikes as Norway, Denmark, Japan and Norway have all cut interest rates lately while the European Central Bank announced a huge stimulus program involving quantitative easing last week.
However, Andrew Pyle, portfolio manager and wealth adviser at ScotiaMcLeod in Peterborough, Ont., said that while "that might be the thought, I don’t think that’s what is going to happen."
He believes the Fed has come to the view that its work is over.
"If it wasn’t for the Fed and the (quantitative easing stimulus program), this multi-year experiment with zero interest rates, we would not have had the growth path that we had," he said.
"The Fed now can basically say: 'Well our job is done (and) now the baton passes to other central banks and other governments for that matter.'"
Investors will also take in a variety of earnings next week from market heavies such as grocer Metro (TSX:MRU), tech companies CGI Group (TSX:GIB.A) and Open Text (TSX:OTC) and fertilizer giant Potash Corp. of Saskatchewan (TSX:POT).
Traders will also get a look at how tumbling crude hit oilpatch players last quarter when Canadian Oil Sands (TSX:COS) posts earnings on Thursday. Analysts expect earnings per share of 30 cents, down from 40 cents a year ago.
Canadian National Railway (TSX:CNR) will also be closely watched. The railway is expected to post earnings per share of 96 cents, up from 68 cents. But it is the outlook that investors will be particularly interested in.
Last week, Canadian Pacific Railway (TSX:CP) beat expectations for earnings and revenue but disappointed in providing a soft outlook, reflecting lower tank car loads of crude oil. However, CP also said it expected to see rising demand from other commodities.