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Markets eye ‘Goldilocks scenario’ of modest U.S. growth, low rates

These are stories Report on Business is following Tuesday, June 17, 2014.

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Markets take turmoil in stride
There may be turmoil from Iraq to Ukraine, but markets appear to be driven more by an economic "Goldilocks scenario" in the United States.

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What analyst Jasper Lawler means by that is that investors are looking more at the outlook for moderate growth and still-low interest rates in the U.S., despite the mounting violence and uncertain situation in Iraq and the tensions in Ukraine.

That, says the analyst at CMC Markets in London, is why investors aren't fleeing. Not only are U.S. stocks poised to open somewhat stronger this morning, by the way, but Toronto's S&P/TSX composite is within reach of record territory.

"U.S. markets are discounting the problems in Iraq and Ukraine as well as weaker foreign direct investment in China, and look set to open higher today as lower oil prices and yesterday's IMF forecast prompts investors to believe the U.S. Fed is likely to suggest keeping interest rates lower for longer," Mr. Jasper said.

"After rallying for a week, Brent and WTI crude were lower in early trading as weaker data from China prompts fears of weaker global demand," he added.

"The potential for higher oil prices from the renewed crisis in Iraq has been investors' biggest fear so oil prices coming off today has enabled stocks to push higher at the open. Perhaps perversely, a downgraded growth forecast from the IMF acted to shore up U.S. stock markets yesterday with the Dow and S&P closing slightly in the positive under the Goldilocks scenario of modest growth and low interest rates for longer."

At this point, Dow Jones industrial average and S&P 500 futures are little changed.

Tokyo's Nikkei gained 0.3 per cent, though Hong Kong's Hang Seng lost 0.4 per cent.

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In Europe, London's FTSE 100 was up slightly by about 6:45 a.m. ET, with Germany's DAX and the Paris CAC 40 up 0.1 per cent.

This comes as the Federal Reserve begins a two-day meeting that will end with its decision tomorrow afternoon. Not much is expected from that, other than the continuing pullback from the stimulus program known as quantitative easing, or QE.

There are also other indicators yet to come.

"After a tiny gain last night, U.S. markets will be looking to housing data to shift some of the emphasis on the deteriorating situation in Iraq," said market analyst Chris Beauchamp of IG in London.

"Reports of talks between the U.S. and Iran have provided some relief, as has the news that the terrorist advance has stalled north of Baghdad. Crucially, the three-week rally in the S&P 500 is still intact, putting us back on course for a test of June highs around 1960."

Many rivers to cross
Enbridge Inc. expects Canadian government approval of its Northern Gateway pipeline project today, which would set several steps in motion.

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As The Globe and Mail's Shawn McCarthy reports, those include signing up shippers and filing a report on just how much support it has for the $7.9-billion project.

My colleague takes a look today at what's next for Enbridge and the project assuming it gets the go-ahead after markets close.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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