Week in Review

US Growth Rate Decelerates

A review of the week's top global economic corporate and earnings news. 


For the week ending 26 January 2018

  • US Q4 GDP grew at 2.6% annual rate
  • Trump addresses World Economic Forum
  • US places tariffs on solar panels, washers
  • Dollar’s value in focus at Davos
  • BOJ, ECB leave policy unchanged

Global equities hit fresh highs this week. Investors took in stride a brief US government shutdown amid strong purchasing managers’ indices, which signal continued synchronized global economic growth. Yields on US 10-year Treasury notes rose 2 basis points to 2.64%, while shrinking inventory levels propelled the price of West Texas Intermediate crude oil to its highest level in three years, near $65 a barrel. Volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), dipped to 11.5 from 12.25 a week ago.


US Q4 GDP disappoints at headline level
The US economy grew at an annual rate of 2.6% in the fourth quarter of 2017, below the 2.9% consensus forecast. However, the innards of the report were robust as consumer spending rose 3.8% versus the same quarter a year ago, a level not seen since late 2014. Additionally, business spending was strong, rising 6.8% year over year. A rising trade deficit and shrinking inventories subtracted from growth this quarter. Q4 data will be revised in February and again in March.

Trump addresses World Economic Forum
US president Donald Trump addressed an international audience of businesspeople and government officials on Friday at the annual World Economic Forum in Davos, Switzerland. Trump emphasized that "America First" does not mean America alone but that there cannot be free and open trade if some countries exploit the system. “Only by insisting on fair and reciprocal trade can we create a system that works not just for the United States but for all nations.”

US commerce secretary Ross: US tariffs not start of a trade war
US commerce secretary Wilbur Ross said this week that a decision to place tariffs on imported solar panels of up to 50%, phasing out over four years, and on washing machines of up to 30%, phasing out over the same term, is not the start of a trade war but rather a response to unfair trade competition as other nations skirt global trading rules. The tariffs fall in the middle of the range of potential remedies available to the administration, and were greeted with a sigh of relief by business groups, who feared they would be stiffer.

US Treasury stirs up dollar debate
The dollar extended its decline this week, falling to a three-year low after comments from US treasury secretary Stephen Mnuchin welcoming the softer greenback’s impact on foreign trade. A weaker dollar makes US exports more competitive overseas while raising the cost of imports. Mnuchin backed off the comments later in the week, saying that in the long run the dollar will reflect US economic strength. President Trump said that Mnuchin was misinterpreted and ultimately wants to see a strong dollar. The week’s standout performer was the British pound, which rallied above 1.40 for the first time since the Brexit vote.

BOJ, ECB signal no policy shifts
While markets did not expect either the Bank of Japan or the European Central Bank to firmly signal policy shifts ahead, there were concerns that both central banks might hint that less accommodative policy lies ahead. Neither did so. BOJ governor Haruhiko Kuroda said that it is too soon to consider policy normalization, while ECB president Mario Draghi fretted that the stronger euro will impede progress toward the central bank’s inflation goal. Going forward, the ECB is more likely to shift its guidance to a more hawkish stance if economic trends remain strong, analysts believe. In US central banking news, the US Senate confirmed Jerome Powell as Janet Yellen’s replacement as chair of the US Federal Reserve by a vote of 85–13. Yellen’s term ends next week.

New phase for German coalition talks
The leadership of Germany’s Social Democratic Party (SPD) narrowly voted last weekend to enter into formal coalition talks with Chancellor Angela Merkel’s Christian Democratic Union. If talks progress toward forming a so-called “grand coalition” of the country’s two largest parties, the agreement will have to be put to a vote of the entire 440,000 membership of the SPD. The process, if successful, could continue until April. Should talks fail, Germany faces the prospect of a snap election.


Earnings on pace for another quarter of double-digit growth
With 24% of S&P 500 companies having reported, the blended earnings estimate of actual and forecasted earnings is 12.4%, according to data from FactSet Research. Sales growth of 7% is expected for the quarter. The forward 12-month P/E ratio for the index is 18.4, well above the 10-year average of 14.2. 





Mon, 29 Jan

United States

Personal income, spending, core personal consumption expenditures

Tue, 30 Jan


Retail sales

Tue, 30 Jan


Q4 gross domestic product

Tues, 30 Jan


State of the Union address

Wed, 31 Jan


Industrial production

Wed, 31 Jan


Manufacturing purchasing managers' indices

Wed, 31 Jan


Unemployment, consumer price index

Wed, 31 Jan


Federal Open Market Committee meeting

Thu, 1 Feb


Manufacturing PMI

Fri, 2 Feb


Employment report



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. 

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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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