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Heavy slate of earnings, Fed meeting, U.S. jobs data to set pace on markets

TORONTO - Key economic developments will compete with earnings for investor attention this week.

Traders will look to the latest growth figures for the Canadian economy Tuesday and to the U.S. Federal Reserve at mid-week for hints as to how long the central bank will carry on with its economic stimulus measures known as quantitative easing.

And the week ends with the most important report of the month, the U.S. employment report for April. The Canadian jobs report comes out a week later.

At the same time, investors will take in another heavy load of earnings reports, including corporate heavyweights Suncor Energy (TSX:SU) and Canadian Natural Resources (TSX:CNQ).

The Toronto market ended the week by dropping 109.31 points or 0.89 per cent on Friday after moving up smartly earlier in the week.

Overall, it was a turnaround from the 2.2 per cent slide the market saw the previous week amid signs of global economic weakness, especially from China.

On top of that, the previous week saw gold stocks plunge as bullion prices hit their lowest level in over two years at around US$1,360 an ounce. Prices recovered somewhat last week to around US$1,450.

The Federal Reserve wraps up its two-day meeting Wednesday and investors are increasingly confident that the central bank will signal it doesn't intend to end its third round of quantitative easing any time soon. That easing has taken the form of the Fed spending US$85 billion a month on mortgage-backed securities and government Treasurys to keep long-term rates low and encourage lending.

"If we look back three weeks ago, the consensus on the street was that there may be some inklings of more Fed members going for a pullback or a retracement from QE by the end of the year," said Andrew Pyle, portfolio manager at ScotiaMcLeod in Peterborough, Ont.

But many of these same officials are now saying that with inflation at around 1.3 per cent, well below the Fed’s target of two per cent, that the Fed can afford to leave QE in place for awhile yet, Pyle said.

At the same time, the Fed has committed to keeping its key rate near zero at least until the U.S. unemployment rate hits 6.5 per cent. It is currently at 7.6 per cent.

For April, economists are hoping to see that the U.S. economy created about 170,000 jobs. That would follow a big surprise from March when only 88,000 jobs were created.

"We have had what I would call conservative estimates going into the report," said Pyle, adding that part of this is the effect of a big across-the-board drop in U.S. government spending which began taking effect March 1, the so-called sequestration.

"And part of it is the fact that we have had economic data in the last month or so suggesting that the housing market is maybe plateauing a little bit. (And) the defence sector has been whacked — you saw defence orders are down 33 per cent in the past month."

On Tuesday, Statistics Canada rolls out its latest reading on economic growth. Economists expect gross domestic product to have grown by 0.2 per cent during February.

The Bank of Canada has sharply downgraded its expectations on economic growth for the first half of this year, chopping it by half a point to 1.5 per cent.

Meanwhile, it's another heavy earnings week, dominated by first-quarter results from two of Canada's biggest energy companies.

Suncor reports on Monday with analysts expecting net earnings of $1.01 billion or 71 cents a share, compared with profits of $321 million, or 66 cents per share a year earlier.

But beyond that, investors are anxious to see the energy giant return some money to them.

"Suncor has indicated that they're generating a lot of free cash flow and the market is expecting a significant dividend increase," said Jeff Bradacs, portfolio manager at Manulife Asset Management.

"And the key there will be how large that dividend increase is and the signal going forward on their capital allocation. And we’ve seen them defer projects and people are looking for that capital to come back to shareholders."

Analysts expect Canadian Natural to post net income of $492.2 million, or 47 cents a share. Earnings per share ex-items is expected to come in at 42 cents.

Other companies handing in earnings this week include Kinross Gold (TSX:K), grocer Loblaw Cos. (TSX:L), First Quantum Minerals (TSX:FM) and Manulife Financial (TSX:MFC).

Note to readers: This is a corrected story. A previous version said Statistics Canada was releasing its latest reading on economic growth on Friday.


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