This is a week of hearts over minds, where investor sentiment will determine the market’s course rather than hard economic data and government policy.
There is both a lack of fresh economic news due this week and a heightened sense of fear among investors, setting the stage for another volatile week of trading.
In Canada, investors will have one eye on the latest fallout from Europe’s financial crisis and another on the June 1 meeting at the Bank of Canada, which may or may not jack rates for the first time in almost two years. With the global economic recovery looking less stable, traders last week were reducing their bets on a rate hike, even as retail sales surged by 2.1 per cent.
In the U.S., the markets are coming off their biggest drop in a year last week, and although investors were somewhat startled by the ferocity of the selloff, they showed enough confidence to buy back in ahead of the weekend, powering a Friday afternoon rally.
Technical analysts point to a key moment last Thursday as a bad omen for markets this week and beyond. The S&P 500 ended below its average closing price during the previous 200 days, which some analysts consider a technical sign that stock markets are likely to fall further. In addition, the benchmark gauge of U.S. stocks fell more than 10 per cent off its recent high, putting the market into official correction territory and generating more talk about the arrival of the bear.
Adding to the negative sentiment, prices for commodities, which are fundamental to any recovery, have fallen back close to their levels a year ago when the economy began to reignite.
