Weekly Newsletter

Market Watch



The big picture

G-20 take aim to help spark growth



The European Central Bank surprised financial markets by cutting its main interest rate to a new low of 1.25 percent with a smaller-than-expected 25 basis point reduction. At the Group of 20 (G-20) Summit, a host of measures were announced that are designed to help to reignite world growth. World leaders agreed to tighter regulation of the global financial system and pledged more than $1 trillion to bolster lending by the International Monetary Fund to nations in need.



The G-20, which represents most of the world's largest economies, is taking "unprecedented steps" to attack the global economic downturn, stimulate growth and expand loans to troubled nations, President Obama said at the close of the group's meeting in London. Prime Minister Stephen Harper applauded the outcome, stating that “markets should take considerable comfort from this action.”



The Organization for Economic Cooperation and Development (OECD) downgraded previous economic growth forecasts, predicting that the economies of the 30 wealthy OECD countries will shrink in 2009 and 2010. Nevertheless, OECD Chief Economist Klaus Schmidt-Hebbel expressed confidence that government-implemented policies will succeed in preventing another Great Depression.



General Motors CEO, Rick Wagoner was ousted from his position by the Obama administration after nine years at the company’s helm – in the process both GM and Chrysler were chided for failing to submit adequate restructuring plans.



The markets

Winning streak continues



The S&P TSX jumped to its highest close in nearly three months on hopes that actions agreed to at the G-20 summit in London would help restore global growth. Meanwhile, Research In Motion Ltd. said that its earnings jumped nearly 26% – exceeding analyst estimates – during the fourth fiscal quarter on strong sales of the company's BlackBerry line of smart phones.



Thomson Reuters predicted rising sales in its annual report, saying that the company is well-positioned geographically to survive the global economic downturn, in part due to continued growth potential in emerging markets. At the same time, the head of Canada's banking regulator said that Canadian financial institutions are looking at whether they should take advantage of their strong balance sheets to acquire assets in other countries hit by the global financial crisis.



Our recommendation
Time to selectively build positions



· Equities. Economic statistics are anticipated to be at their worst over the next several months and Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group suggests that in response to any negative market reactions investors should be selectively building equity positions in quality companies to position portfolios for the next cycle.



· Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, says high quality corporate bonds, such as Canadian banks and insurance companies, continue to offer attractive yields relative to government issues. Although credit spreads have tightened significantly, they still remain wide, and we recommend investors following the laddered portfolio process add exposure to these sectors when rolling maturities at this time.



· Portfolio strategy. With volatility still at record highs, it’s important to review the impact on your portfolio allocations and ensure that your holdings remain appropriate for your goals and risk tolerance.








The month in review

March: In like a bear, out like a bull



Indices fell during the month’s early trading days of March, before surging in the latter half of the month. In addition to rising stock prices, March also saw an increase in merger and acquisition activity, manufacturing, and pending U.S. home sales. Meanwhile, interest rates in Canada, the U.K. and Europe were ratcheted lower, and economic growth forecasts of some central bankers and the Organization for Economic Co-ordination and Development also fell.



Strongest market rally in decades



Stock markets finished the first quarter of 2009 higher after a rally three weeks in length and counting. Since falling to multi-year lows March 9, the TSX main index finished the quarter up about 15% while the Dow Jones industrial average had risen 16%. On the second trading day of April, investors sent indexes up another 3%, with the Dow Jones breaking the 8,000 mark for the first time in nearly two months.



Easy money continues



Early in the month, the Bank of Canada took its short-term interests rates nearly as low as they can go on Tuesday, slicing the trend-setting overnight rate half a percentage point to an all-time low of 0.5%. Meanwhile, the Bank of England cut its key rate by another 50 basis points on Thursday to a record low of 0.5%, and the European Central Bank cut interest rates to an all-time low of 1.5%. Australia’s central bank was the only one to announce that rates would remain unchanged this week.



Economic indicators split



February U.S. home sales were released this month, and were an improvement from January levels. Meanwhile, Total Durable Goods Orders rose for the first time in five months, showing the largest monthly gain since December 2007. While March showed some signs that the global economy is trying to find a bottom, significant restructuring is still underway in many sectors of the economy. Indeed, an ADP survey of private employment in the U.S. showed a record 742,000 jobs were lost during the month.



Leaders cautiously optimistic



Early in the month, European Central Bank President Jean-Claude Trichet reiterated his expectation that the euro zone economy will pick up by 2010. Closer to home, Bank of Canada Governor Mark Carney was slowly backing away from his controversial prediction of 3.8% economic growth in 2010, telling a meeting of G20 financial watchdogs in England that his forecast of a recovery by the second half of 2009 will likely be adjusted downwards. In the U.S., Federal Reserve Chairman Ben Bernanke made an unprecedented appearance on the television program 60 Minutes in which he defended steps taken by the government to resuscitate the banking system, adding that sustained recovery can only happen once the financial sector has achieved solid footing.



Flurry of M&A activity



Mergers and acquisitions were fast and furious during March. Suncor and Petro-Canada announced a deal that would make the new entity the fifth-largest energy company in North America. In the pharmaceutical world, Switzerland’s Roche launched a USD$46.8 billion bid for U.S.-based Genentech, and Merck and Schering announced a merger worth USD$41.1 billion. Meanwhile, computer giants Sun and IBM are said to be actively engaged in merger talks.



Privacy Policy and Legal Disclaimer
TM Trademarks used under authorization and control of The Bank of Nova Scotia.
ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF

This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ("SCI"), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice. All performance data represents past performance and is not indicative of future performance. Scotia Capital Inc. and its affiliates collectively beneficially own in excess of 1% of one or more classes of the issued and outstanding equity securities of Royal Bank. Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or debt securities of, or have provided advice for a fee with respect to Royal Bank. TM Trademark used under authorization and control of The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.