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Week in Review: Investors watch data for Fed signals

For the week ended 15 May 2015

  • China's central bank lowers interest rates again
  • Bank of England leaves rate unchanged at 0.5%
  • Q1 eurozone GDP grew at 1.6% annualized pace
  • US unemployment claims hit 15-year low
  • US retail sales, industrial production, consumer sentiment disappoint

US stock indices rose to new records on Thursday, though surprisingly weak retail sales, industrial production and consumer sentiment indicate that the US economy might be losing momentum — potentially delaying the US Federal Reserve’s first rate hike. Easing monetary policy in China sparked equity rallies in Hong Kong and Shanghai. Eurozone GDP increased to a two-year high, with Spain and France posting the strongest growth.

Yields on 10-year German Bunds settled at 0.67%, up 12 basis points for the week and 60 basis points from record lows set in April, while 10-year US Treasury yields retreated below 2.15%. The euro stayed near $1.14. Brent crude oil futures traded close to $67 per barrel, up $2 for the week, while West Texas Intermediate held under $60.

US and global economic news

People’s Bank of China cuts interest rates again
China's central bank reduced interest rates by 0.25%, the third reduction in six months. One-year loan rates now stand at 5.1%, with one-year deposit rates at 2.25%. Stocks trading on markets in Shanghai and Hong Kong rallied on the news.

UK interest rates unchanged
In the first meeting since the UK general election last week, the Bank of England left the policy interest rate unchanged at 0.5%. The bank rate has remained at this level since March 2009, and the BOE’s quarterly inflation report, also released this week, suggests that the first hike will be no sooner than 2016.

Eurozone economic growth at two-year high
Eurozone GDP grew at an annualized pace of 1.6% in the first quarter, below expectations but the highest rate of growth in two years. By country, GDP growth was led by Spain at 3.6% and France at 2.4%. German GDP growth lagged at 1.2% after leading the region in prior quarters.

US job openings hold steady in March
According to the closely followed Job Openings and Labor Turnover Survey, or JOLTS, nearly five million jobs were open at the end of March, little changed from the 15-year high set in February. US employment increased by three million jobs in the 12 months through March, matching the annual job gains last seen in the late 1990s.

US initial jobless claims at 15-year low
Initial jobless claims fell slightly to 264,000. The four-week moving average now stands at 272,000, the lowest number since April 2000. Fewer unemployment insurance claims were among the factors sparking a rally in US equities, which closed at record highs on Thursday.

US retail sales disappoint
April retail sales were unchanged from the prior month, below expectations of a 0.2% increase. So far in 2015, retail sales are up 1.9% from the same period last year, with restaurant sales up 9% from 2014 but sales at gasoline station sales down 23% on lower fuel costs. The US dollar declined on the news.

US producer prices decline
The Producer Price Index (PPI) declined 0.4% in April, well below the expected 0.1% increase. Producer prices have fallen in five of the past six months and are down 1.3% from April 2014. The core PPI measure, which excludes food and energy, declined 0.2%.

US industrial production posts another down month
US industrial production was down 0.3% in April from the prior month, the fifth straight month of declines. The strong US dollar was cited as a key factor weighing on the production of US exports. Capacity utilization dropped to 78.2% from a revised 78.6% in March.

US consumer sentiment drops sharply
The University of Michigan Index of Consumer Sentiment plunged 7.6% in April to 88.6, far below the lowest of economists’ estimates. The decline from the previous month was widespread, with both current conditions and expectations falling across all ages, incomes and regions.

US and global corporate news

Verizon announces acquisition of AOL
Verizon Communications
announced an all-cash deal to purchase AOL for $4.4 billion, an 18% premium to the pre-announcement share price. By contrast, when Time-Warner merged with the company in 2000, the transaction valued AOL at $156 billion. Verizon hopes to leverage AOL's mobile video and advertising platform.

Fake acquisition announcement roils Avon shares
Shares of Avon Products rose sharply on a filing with the SEC that claimed the company was being acquired by a private equity firm. The purported acquisition was later revealed to be a hoax.

Dupont wins proxy battle with activist investor
Dupont defeated an attempt by activist investor Nelson Peltz to win seats on the company’s board. All sitting directors were reelected.

Cisco reports higher revenues and earnings
Cisco
reported third quarter revenue up 5% from the previous year and a 6% increase in earnings, beating analysts’ expectations despite industry forecasts of weak spending on telecommunications services.

The week ahead

  • US housing starts and permits are reported on Tuesday, 19 May.
  • The Federal Open Market Committee releases the minutes from its April meeting on Wednesday, 20 May.
  • The Bank of Japan announces its monetary policy decision on Thursday, 21 May.
  • US existing home sales are reported on Thursday, 21 May.
  • The Bureau of Labor Statistics releases the US Consumer Price Index on Friday, 22 May.

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.

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Past performance is no guarantee of future results.

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

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