U.S. factory orders boost North American markets; loonie closes higher

TORONTO – North American markets, which experienced a bit of a bumpy ride late last week, closed higher Monday amid news that U.S. factory orders enjoyed their first increase since last summer.

Toronto’s S&P/TSX composite was up 27.70 points at 15,367.47, while the loonie rose 0.44 of a U.S. cent to 82.70 cents.

In New York, the Dow Jones industrial average gained 46.34 points to 18,070.40, the Nasdaq index rose 11.54 points to 5,016.93 and the S&P 500 advanced 6.20 points to 2,114.49.

Markets were down sharply last Thursday, with the Dow registering an almost 200-point drop, before rallying to triple-digit gains on Friday.

“We’re seeing on the whole, more regular volatility than we’re used to,” said Kash Pashootan, senior vice-president and portfolio manager at First Avenue Advisory in Ottawa.

“That’s really a direct result of five years of above historical average returns in the markets. Now that we’re seeing equity markets fairly valued, and not undervalued the way that they were in previous years, the result is we’re seeing more of the characteristics of what we should expect in equities, and one of those characteristics is volatility.”

In economic news, the Commerce Department reported that U.S. factory orders rose 2.1 per cent in March, breaking a string of seven monthly declines stretching back to July. Meanwhile, orders in a category that tracks business investment plans edged ahead 0.1 per cent for its first advance since last August.

It was just the opposite in China, where the HSBC’s manufacturing index based on a survey of factory purchasing managers fell to a 12-month low of 48.9 in April from 49.6 in March. The index is based on a 100-point scale on which numbers below 50 show contraction.

However, that has raised hopes that Beijing will take action to boost the economy, something it has done several times this year. In the most recent move, the central bank last month slashed the reserve requirement ratio for banks by a full percentage point to make more money available for lending.

Meanwhile, earnings season is wrapping up in the U.S., just as it gets underway in Canada.

Pashootan says despite the fact that a number U.S. multinational companies have revised their outlooks for 2015, on the whole the quarterly results were not as bad as they may appear.

“On a surface level, it seemed negative, in the sense that we saw downward revisions to 2015 outlook, but the good news is that most of that was driven because of currency and not because of business fundamentals,” said Pashootan.

Although a number of companies took a hit due to the higher U.S. dollar, most of them still showed strong top-line sales and year-over-year growth, said Pashootan.

Looking ahead to Canadian earnings, Pashootan says he wouldn’t be surprised to see reduced budgets and dividend cuts from oil producers.

“I don’t feel that the negative implications of falling oil prices have fully played themselves out yet,” said Pashootan.

On commodity markets, the June crude contract was down 22 cents at US$58.93 a barrel, while June gold rose $12.30 to US$1,186.80 an ounce and July copper fell a penny to US$2.92 a pound.