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Strategies & Market Trends : Canadian Market Direction

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To: hsg who wrote (9)	6/7/1997 9:46:00 AM
From: Jan Johnstone	of 35

Markets just keep on roaring. Continual new highs on the TSE I can understand, but on the Dow ?? Truly amazing. Unemployment in the US(4.8%) is at a 23 year low, full employment (non-inflationary) is considered to be at 5.5% . The US economy is at full steam, with no definite signs of upcoming inflation. In economic jargon, the Aggregate Supply Curve is very elastic. As demand for goods rises, output expands with stable prices. We may have to start using a whole new set of assumptions with regard to the unemployment-inflation tradeoff. Key numbers for Fed tightening in July are the upcoming PPI, and CPI numbers in the next couple weeks. If the Fed does not tighten, this will be great news for the TSE, since Canadian tightening won't happen either. In this scenario the TSE will rise faster than the Dow, since Canada is nowhere near it's productive capacity. In my view what happens this Friday(PPI) and next Tuesday(CPI) in the the US will decide how the TSE performs over the summer. Other views ? Jan

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