TORONTO - Investors will focus on economic data this coming week as the third quarter earnings season starts to wind down in the U.S., and key data, including employment updates, come in from both sides of the border.
There will also be plenty of marquee earnings reports from major Canadian corporations this week, including updates from big insurance companies including Manulife Financial (TSX:MFC), GreatWest Lifeco (TSX:GWO) and Sun Life Financial (TSX:SLF).
Stocks in many of the insurers are well off their 52-lows and close to their best levels in a year as easing by the U.S. central bank has helped boost stock markets and increased bond yields.
Other big corporate names reporting this week include retailer Canadian Tire (TSX:CTA.B), coffee chain Tim Horton's (TSX:THI) and Canadian Natural Resources (TSX:CNQ).
Last week, the TSX ended down 0.46 per cent as gold stocks fell further into negative territory and bullion prices continued to lose ground. Despite the dip, the market had its best month so far this year during October, running ahead 4.5 per cent, leaving the TSX up 7.26 per cent year to date.
The TSX is entering the final two months of 2013 trading at its highest levels since the summer of 2013 but Andrew Pyle, portfolio manager and senior wealth adviser at ScotiaMcLeod, wonders just how sustainable the strong gains will prove to be.
"The problem of course is that we have had an equity market that has just gone stellar on this relief rally post-(government) shutdown regardless of data flow, regardless of concerns over the quality of the data," he said.
"And so the market is at greater risk obviously."
Meanwhile, U.S. traders will take in a key reading on the health of the American non-manufacturing sector, growth figures for the third quarter and most importantly, the U.S. government's employment report for October.
The data will be carefully weighed for hints as to when the Federal Reserve might decide the economy can handle the central bank cutting back on a key stimulus — its US$85 billion of monthly bond purchases that have kept rates low and helped lift equity markets.
But there is a bit of a problem with this currency crop of U.S. reports.
"The quality of this data has been impeded by or affected by the U.S. government shutdown," said Pyle,who is based in Peterborough, Ont.
"So everything and anything that impacted the ability to do a survey will show up in these numbers."
That difficulty with the crop of data makes it even more difficult for traders who want to know when the Fed is likely to start tapering those asset purchases.
"And I don’t think it will be until December or maybe January when economists will say, OK, these numbers are showing a clear sign of the health of the U.S. economy or the Canadian economy and I can place real bets on that," he said.
Degraded or otherwise, the U.S. jobs data is expected to be a disappointment. Economists expect the U.S. Labor Department to report that only 125,000 jobs were created during October following as 148,000 in September. They also expect the jobless rate to rise to 7.3 per cent from 7.2 per cent.
That is because the jobless rate will include workers who were temporarily laid off during the shutdown. It will also include private sector employees laid off by companies that rely on federal contracts.
In Canada, economists look to Statistics Canada to report on Friday that job creation during October will likely match September, coming in at about 11,000 with the jobless rate gaining 0.1 of a point to seven per cent.
Other U.S. data coming out this week will likely show the American economy expanded at an annualized rate of 1.9 per cent during the third quarter, down from 2.5 per cent in the previous quarter, dragged down by sluggish consumer spending growth of around 1.5 per cent.
Economists looked for the Institute for Supply Management's non-manufacturing sector to show slightly lower expansion for October, coming in at 54 on top of a 54.4 reading during September.
"A weaker October report would suggest that lingering political uncertainty continues to dampen business confidence," said BMO Capital Markets senior economist Sal Guatieri.