Canadian Manufacturing

Stability in euro zone, moderate U.S. growth on horizon: report

BMO Harris Private Banking report found mixed results on both sides of Atlantic

TORONTO—With the world keeping a close eye on Europe and the United States for signs of stability and growth, a new report says there is good news just around the corner.

With a pledge to preserve the Euro and growth and job creation in the U.S., BMO Harris Private Banking’s latest Monthly Market Commentary Report sees stability on the horizon.

The euro zone

The first half of the summer saw good news and bad news in Europe.

According to the report, investor concern pushed the yield on 10-year Spanish and Italian bonds to dangerously high levels, which prompted strong support from the European Central Bank; its pledge to “do whatever it takes” to preserve the Euro currency boosted investor confidence.

In turn, the risk premium for Spanish and Italian 10-year bonds dropped and euro zone stock markets rallied.

“Policymakers have the will and ability to resolve the euro zone situation and avoid systematic damage to financial systems, but only time will tell how their efforts will unfold,” BMO Harris Private Banking investment strategist Paul Taylor said in a statement.

The U.S.

Mixed economic data has emerged from the U.S. in recent months, with growth of 1.5 per cent in the second quarter of 2012 and 163,000 jobs added, but a slight increase in the unemployment rate to 8.3 per cent.

While the growth the economy experienced is in line with expectations and consistent with the ongoing uphill recovery and the added jobs eclipsed the projected 100,000, the 0.1 per cent increase in unemployment is trending in the opposite direction.

“While Q2 economic data was unambiguously weak, stronger economic data has emerged at the start of the third quarter in 2012,” Taylor said.

North American equity markets

North American equity markets remained volatile as global challenges continue to put pressure on the economy and policymakers, according to the report.

The Canadian equity market decreased slightly to 0.7 per cent since the beginning of 2012, but rose 0.8 per cent in July.

South of the border, the U.S. equity market rose 9.3 per cent over last year, although it fell 0.4 per cent in July.

The Canadian bond market is ahead 2.7 per cent year-to-date, up 0.7 per cent in July.

“We believe Canadian equities will continue to be relatively inexpensive and will generate moderate returns over the next 12 months, with both the economy and corporate earnings continuing to grow modestly,” Taylor said.

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