Market Watch: The big picture

10 U.S. banks to repay bailout funds

In the U.S., 10 of the largest financial institutions are ready to repay $68 billion of government-bailout money. More good news came from a U.S. Federal Reserve survey suggesting the worst of the recession may be over as the "downward trend is showing signs of moderating." Many analysts predict the U.S. economy to slow by 1-3% this quarter, versus sharp declines of 5.7% and 6.3% in preceding quarters. U.S. retail sales rose in May by 0.5%, the first advance in three months, and job losses slowed, with new applicants for jobless benefits at the lowest level since January.

Finance ministers from Group of Eight (G8) countries are expected to offer a brighter assessment of the global economy at a meeting this weekend in Lecce, Italy. Many countries have seen signs of improvement as a result of coordinated policy actions by governments worldwide. In Europe, European Central Bank (ECB) governing council member Christian Noyer expressed cautious optimism that the global economy could turn up in the first half of 2010. The strength of Canada's banking system has helped it navigate the crisis better than most, according to World Bank President Robert Zoellick. Zoellick offered the praise while speaking to the International Economic Forum of the Americas.

The markets Oil drives TSX higher

The S&P/TSX Composite Index has rallied 40% from its March lows, led by the Energy sector. Oil prices extended a three-day rally to hit above US$73 a barrel on Thursday, the highest price since Oct. 21, after the International Energy Agency revised its outlook higher for global oil demand. Oil imports into China rose 5.5% in May compared to the previous year, hitting the second-highest volume on record.

Fiat acquired a controlling stake in Chrysler on Wednesday after the U.S. Supreme Court lifted a temporary stay on the sale. Restructuring at General Motors (GM) continues with the Wall Street Journal reporting that GM is "very close" to cutting a preliminary deal to offload Sweden-based Saab. Meanwhile, the US$13.5 billion acquisition of Barclays PLC's investment unit, BGI, by BlackRock Inc. has created the world's largest asset management firm with a staggering US$2.7 trillion in assets under management

Our recommendation
Choose shorter maturity bonds as rates set to rise

* Equities. Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group, believes the current strength in equities is overdone and that the market is vulnerable to a pullback, or at least a period of consolidation. We continue to advocate that investors take profits in long trading positions or overvalued cyclical positions that do not represent long-term core holdings. In the event of an inevitable pullback, return to selectively accumulating equities in anticipation of the next sustainable bull market for stocks.


* Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, highlights that with Scotia Economics recent change to their forecast, calling for rising yields across the entire maturity curve in 12 months time, active traders should remain in shorter maturity bonds. Clients should consider taking profits on subordinate Canadian bank bonds such as Tier 1 Capital securities as many are up more 20% in value since December. Corporate spreads have narrowed significantly since the beginning of the year as investor risk appetite returns. As such, we see better relative value in Municipal bonds where spreads have not declined to the same degree.


* Portfolio strategy. With significant volatility still a factor in the markets, it's important to review the impact on your portfolio allocations and ensure that your holdings remain appropriate for your goals and risk tolerance.