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Traders look to latest Canadian/U.S. economic growth data, bank earnings

TORONTO - The Toronto stock market looks to build on the solid gains racked up so far this year as traders get set to consider the latest economic growth figures for Canada and the United States this week, along with earnings reports from the big Canadian banks.

The Canadian dollar could find itself under renewed pressure when Statistics Canada releases growth data for December and the fourth quarter on Friday.

December is expected to show a sharp reversal in gross domestic product, largely because of crippling ice storms in Ontario and Quebec towards the end of the month.

"We think that played a huge role in a likely outright decline in December GDP of about 0.3 per cent following a string of pretty decent gains in GDP," said Sal Guatieri, senior economist at BMO Financial Markets.

Guatieri noted that the stormy weather won’t affect overall fourth-quarter growth much as the damage occurred late in the month.

"We should still see a pretty decent increase in Q4 GDP of 2.6 per cent," he said.

At the same time, he expected first quarter growth will slow to around two per cent, "maybe less."

Friday will also see the release of the first revision to U.S. fourth-quarter gross domestic product growth.

The initial reading came in at 3.2 per cent but Guatieri thinks that won’t hold, again because of worsening weather in December. He sees growth closer to 2.7 per cent and looks for first-quarter growth to slow to below two per cent.

"We’re just seeing broad weakness across consumer spending, housing market indicators, manufacturing, right across the board — and the only thing that comes to mind to explain that is the weather," he said.

The TSX ended last week with a solid gain of 1.07 per cent, reflecting general satisfaction with fourth-quarter earnings reports and positive U.S. manufacturing data last week. Gains were led by the gold sector, which has revived about 30 per cent year to date after falling almost 50 per cent last year.

Meanwhile, investors will take in earnings this week from Bank of Montreal (TSX:BMO), Royal Bank (TSX:RY), TD Bank (TSX:TD) and CIBC (TSX:CM). Scotiabank (TSX:BNS) posts earnings next week.

Expectations are largely muted, reflecting higher economic growth outside of Canada and a housing market coming off the boil.

The financial sector is down for February and "the pullback has been partially a proxy on the Canadian housing market because we know that housing has slowed down," said Wes Mills, chief investment officer, Scotia Private Client Group

"And then secondly, it is those banks that are highly exposed or exposed at all to emerging markets. The fragile five emerging markets that are kind of pulling down the global sentiment is also pulling down any banks that have broader emerging market exposure."

The battered Canadian dollar could be a plus for the banks with the biggest U.S. operations, such as TD, BMO and RBC.

The currency has fallen sharply over the past several months, down a good four cents against the American dollar just since the start of the year to just below the 90-cent US level.

"It should have a positive impact on any earnings coming back from the U.S., so the ones that have a big US operation, that should have a positive effect on earnings," said Colin Cieszynski, senior markets analyst at CMC Markets.

"If they’re profitable then net/net it should be a positive for them as the earnings come back."

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