TORONTO - It could be another volatile week on stock markets as traders are again forced to weigh the distorting effects of harsh winter weather on U.S. employment data.
"They’re having huge problems down there and so it’s not a surprise they’re continuing to be disrupted and their numbers next month could be as well," said Colin Cieszynski, senior markets analyst at CMC Markets.
Markets ended last week positive, with the TSX up 0.67 per cent and the Dow industrials ahead 0.6 per cent, as traders tried to make the best of January employment data showing the U.S. economy created only 113,000 jobs against the 180,000 that had been expected. That followed a meagre 74,000 gain in December, another month of harsh weather.
Still, the unemployment rate moved down to 6.6 per cent from 6.7 per cent, the lowest since October 2008, even as labour force participation increased.
Despite the overall gains for the week, there were huge swings on both the TSX and the Dow after data for China and the U.S. showed a slowdown in manufacturing, raising concerns about whether economic problems in emerging markets can be contained.
Investors have been worried about how these countries will fare now that the U.S. Federal Reserve is significantly cutting back on its bond purchase stimulus measure, which had kept cheap and abundant investment money flowing into those markets. Now, the money is flowing out as traders look for safer returns.
"The bad news is that you have very negative fund flows at the moment — sentiment is very negative," said Bob Gorman, chief portfolio strategist at TD Waterhouse.
"And the underlying issue here is that credit gets a little more expensive and a bit less abundant and that’s probably not going to change a lot because the trend line is to withdraw Fed stimulus."
That Fed stimulus has not only kept long-term rates low but also encouraged a strong rally on many markets, including the U.S. where the S&P 500 rocketed about 30 per cent last year.
But growing sensitivity to bad news and emerging market issues have ignited what is so far a small correction that has seen the S&P 500 fall almost three per cent so far this year, while the Dow has slipped almost five per cent and those losses could easily grow.
"I’m inclined to think we’re in a correction of who knows how long and how deep, but at the end of it all we will see the S&P 500 get up this year," said Gorman, who thinks the index could hit the 1,890 level, about 150 points above Friday's close.
The major economic report for this week is U.S. retail sales for January but analysts think these results will also be distorted by winter weather.
In Canada, traders will take in the latest reading on housing starts and manufacturing shipments.
It's also a heavy week for earnings.
Gold miners including Agnico-Eagle Mines (TSX:AEM) and Barrick Gold (TSX:ABX) post earnings and Cieszynski expects their results will be impacted by a familiar issue — making money in an environment of falling gold prices and rising costs.
"It’s a whole rebalancing of a business where you built something for gold prices at US$1,900 and all of a sudden, you’re at $1,200 gold — you have to rethink everything."
Insurers Manulife Financial (TSX:MFC) and Sun Life Financial (TSX:SLF) hand in their results on Thursday.