MACRO NEWS

 

Another solid US employment report
US labor markets remained tight in July, with the unemployment rate slipping to 4.3%, matching a recent 16-year low. The economy added another 209,000 jobs, handily exceeding the 180,000 six-month average. However, despite solid job growth, wages remain restrained, with average hourly earnings holding steady at a 2.5% annual growth rate. The upbeat data should keep the US Federal Reserve on course to begin shrinking its balance sheet in the next few months and for another rate hike before year's end.

 

Russia probe ratchets up
Special counsel Robert Mueller has empaneled a grand jury in Washington, D.C., to investigate Russian interference in the 2016 US presidential election, according to the Wall Street Journal. This indicates the probe is entering a new phase and suggests it could last for months.

 

Dow reaches new milestone
One thousand points isn’t what it used to be, accounting for a move of less than 5% at present levels, but markets took note of this week’s milestone nonetheless as the venerable Dow Jones Industrial Average broke and closed above the 22,000 mark for the first time. Solid corporate earnings and a weakening US dollar are providing a favorable backdrop for equities amid slow-but-steady economic growth and low inflation. The growth/inflation combination could keep the Fed from tightening monetary policy more quickly than expected.

 

Trump reluctantly signs sanctions bill
US president Donald Trump, fearing that a veto would be overridden by Congress, this week signed a sanctions bill that targets Russia’s energy and defense sectors. Trump’s objections to the bill stem from his belief that it encroaches on the executive branch’s authority to negotiate. Reacting to the bill, Russian prime minister Dmitry Medvedev declared that a full-fledged trade war has been declared against Russia. Russia also ejected 755 US diplomats and seized two diplomatic properties. The bill also includes sanctions on North Korea and Iran.

 

US scrutinizes China’s IP practices
The Trump administration is considering taking trade action against China and is discussing launching a probe into Beijing’s insistence that foreign companies transfer technology to local Chinese subsidiaries and partners. The administration could launch a “Section 301” action, which allows the president to impose duties on products from countries that use unfair trade practices. An announcement had been scheduled for Friday, but was canceled by the White House without explanation. Trump also this week linked trade with lack of progress on restricting North Korea's nuclear program, suggesting the potential for trade restrictions with China unless it takes action to restrain its neighbor.

 

Greenspan more worried about bonds than stocks
Former Fed chairman Alan Greenspan opined this week that we are experiencing a bubble, not in stock prices, but in bond prices. Real long-term interest rates are much too low and are therefore unsustainable, he said. Greenspan sees a return to 1970s'-style “stagflation,” or poor economic growth and rising inflation. “That is not good for asset prices,” he warned.

 

Czech central bank first in Europe to hike rates
While the Bank of England and the European Central Bank have been contemplating shifting to less accommodative monetary policy stances, the Czech central bank took action on Thursday, raising its main policy rate from 0.05% to 0.25%, its first hike since 2008. Rising wages and shrinking economic slack were factors behind the rate boost. Meanwhile, the BOE voted 6–2 on Thursday to hold rates steady. Markets have been on high alert since a close 5–3 vote at the June BOE meeting to leave rates unchanged raised the specter of an interest rate hike sooner than the market had anticipated.

 

Venezuelan crisis intensifies after vote, arrests
Following a disputed election for a new legislative body last weekend, in which voting tallies were reportedly manipulated, and the arrest of two high-profile opposition leaders, Venezuelan president Nicolas Maduro faces increased pressure both from within Venezuela and without. The United States placed sanctions against Maduro, freezing any assets he holds in the US, and barred Americans from doing business with him. Also, anyone doing business with the newly elected legislative superbody will also be subject to US sanctions.

 

EARNINGS NEWS

 

According to Thomson Reuters I/B/E/S, with 75% of the companies in the S&P 500 Index having reported, Q2 earnings are expected to increase 11.8% compared with a year ago. Excluding the energy sector, the earnings growth estimate dips to 9.2%. Revenues are expected to increase by 5% compared with Q2 2016, and 4.1% excluding energy.

 

THE WEEK AHEAD
 

Date

Country/Area

Release/Event

Tue, 8 Aug

China

Trade balance

Wed, 9 Aug

China

Consumer and producer price indices

Wed, 9 Aug

United States

Unit labor costs and nonfarm productivity

Thu, 10 Aug

United Kingdom

Industrial production, trade balance

Thu, 10 Aug

US

Producer Price Index

Fri, 11 Aug

US

Consumer Price Index

 

 

 

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

 

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

 

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.

 

Past performance is no guarantee of future results.

 

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg New; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.

 

This content is directed at investment professionals only.


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