Markets look to data for guidance

Economic data will set the tone for trading on stock markets this week as investors return from the holidays and take in the latest reports on U.S. manufacturing and Canadian and U.S. employment.

"Absolutely, we're going to come back to full volumes this week, we're going to come back to economic navel-gazing," said Andrew Pyle, investment adviser at ScotiaMcLeod in Peterborough, Ont.

"You could see a lot of pent-up buying coming back. I still think there's a lot of cash on the sidelines and the cash has been waiting for indicators and the indicators are positive. Cash will, or should, come back into the market."

The TSX begins 2011 trading on Tuesday, a day after U.S. markets.

Toronto's main index ended 2010 about 14 per cent higher than it started, amid expectations of a continuing economic recovery.

The latest look at the U.S. economy comes out Monday, when the Institute for Supply Management releases its December index on the manufacturing sector.

Economists expect the sector to show slightly greater expansion from November, rising to 56.9 from 56.6.

However, hopes are high that the widely watched barometer will perform even better after a gauge of manufacturing in the U.S. Midwest came in much better than expected late last week.

The Chicago purchasing managers index climbed to 68.6 in December, up substantially from November's reading of 62.5 and higher than the reading of 61 that economists had expected.

"I would think the whisper number is obviously elevated after the Chicago numbers," Pyle said. "And I think this is going to give economists a shot at a rethink going into the first quarter, that obviously businesses in the States are feeling a lot more optimistic about the outlook and about what is happening."

Jobs data

The major report for the week comes out on Friday with the release of the U.S. non-farm payrolls report for December.

Economists expect that the U.S. economy added 125,000 jobs last month, a big improvement over the 39,000 positions created in November but well below what it is normally seen during an economic recovery.

"If you look at the last expansion that we went through, we had average gains of about 150,000 per month," Pyle said.

"So this would just put us on the average. It would not get us into what most people consider the normal range for a recovery, which would be somewhere between 200,000 and 400,000 per month."

But other data released last week gives a reason for optimism that job growth is accelerating, Pyle said.

The U.S. Labor Department said last Thursday that applications for jobless insurance totalled 388,000 last week, the lowest number since the week of July 12, 2008.

"That's not an insignificant development in the labour market," he said, observing the data will have no bearing at all on Friday's data.

"But let's assume the consensus is right and we get about 150,000 (on Friday), it does suggest that there's a hope that we will get into that 200,000-plus range at some point, perhaps in the first half of next year if you believe the claims numbers."

In Canada, economists expect the economy cranked out another 20,000 jobs during December, on top of the 15,200 created during the previous month. Statistics Canada issues its report for December on Friday.

"Employer surveys such as Manpower Inc. and the Ivey Purchasing Managers Index show that labour demand is picking up amid improving U.S. economic prospects in the wake of (stimulus measures) and the grinding climb in commodity prices to now 26-month highs," BMO Capital Markets senior economist Michael Gregory said in a commentary.

However, the unemployment rate could increase to 7.7 per cent from 7.6 per cent as more discouraged job seekers try to get back into the workforce.