STOCKS
Investors are looking for business spending to boost the economic recovery and certainly they have the financial wherewithal to play a big role with capital spending.
Companies in the S&P 500 stock index are holding cash and equivalents of $1.2-trillion (U.S.), the highest balance in at least two years, said Benjamin Reitzes, an economist with BMO Nesbitt Burns Inc.
"The sharp recovery in corporate profits, along with massive cash balances, indicate that firms are financially able to hire," he said in a report to clients.
Currently, the cash balances are about 62 per cent above the average level from 2004 to 2007.
"The strong cash positions likely contributed to the rebound in equipment and software spending, which surged at an annual rate of 13.3 per cent during the fourth quarter," he said. "Further solid gains in business spending, as appears likely in the first quarter, would indicate the potential for more significant job growth."
BONDS
The U.S. Federal Reserve Board is unlikely to raise the federal funds rate until late 2010 or early 2011 with inflation under control and the economy still weak, economists say.
And it's not only the federal government that's facing budgetary problems. "Despite the massive financial aid provided by the federal fiscal stimulus to state and local governments, their budget problems remain intense," said Mark Zandi, chief economist with Moody's Economy.com. "Most states are already anticipating sizable deficits in their fast-approaching fiscal 2011 budgets."
The tax revenues for state and local governments, which are important employers, plunged 9 per cent during fiscal 2009.
The size of the fiscal deficit precludes any significant additional fiscal stimulus to help revive the economy, so the Fed is unlikely to raise short-term interest rates any time soon, Mr. Zandi said. Moody's Economy.com puts the odds of a double-dip recession in 2010 at one in four.
COMMODITIES
Copper consumption in China is falling back to more normal levels after a six-month spurt, which is reducing the need for imports and has resulted in a buildup of warehouse inventories since July, said Rasim Jafarov, an economist with DundeeWealth Inc.
The gap between published consumption and production has narrowed as China's domestic production catches up with demand, he said. Mr. Jafarov estimates copper prices will average $3 (U.S.) to $3.10 a pound this year and $3.15 to $3.20 in 2011. Copper recently traded at $3.30 a pound.
"The demand from China is likely to diminish in 2010 as the country is likely to continue expanding its domestic production," he said.
HSBC Holdings Inc. sees more downside risk for copper, predicting an average price of $2.80 a pound during 2010.
HSBC still recommends stocks First Quantum Minerals Ltd., Southern Copper Co. and Grupo Mexico SAB.
UBS Securities Australia Ltd. expects China will need to rebuild its inventories and recommends First Quantum and Freeport-McMoRan Copper & Gold Inc. and Quadra Mining Ltd.