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Week in Review: Mideast unrest, weak data trouble markets

For the week ended 27 March 2015

  • US Q4 growth unrevised at 2.2%
  • US economic data mixed
  • China’s manufacturing activity contracts
  • Eurozone output rebounds, led by Germany
  • Berkshire Hathaway underwrites Heinz-Kraft merger

Global stocks sold off this week on weak Chinese economic data, mixed US reports and rising Middle East violence. The yield on the 10-year US Treasury note climbed briefly above 2.0% before retreating.

Oil prices were volatile but rose for the week. Although US crude oil inventories increased, prices spiked after Saudi Arabia launched airstrikes on neighboring Yemen to counter gains made by Iranian-led rebels. US crude oil rose above $50 per barrel and Brent crude oil traded close to $58 per barrel.

US and global economic news

US Q4 GDP unchanged at 2.2%, corporate taxes decline
The US economy expanded by 2.2% in the fourth quarter as previously estimated, despite expectations for an upward revision. After-tax corporate taxes fell at an annualized rate of 1.6% in the fourth quarter but 8.3% for all of 2014 — the largest annual drop since 2008. A key factor was the detrimental impact of a strong US dollar on multinational firms.

US durable goods orders fall 1.4% in February
US durable goods orders declined a seasonally adjusted 1.4% in February. The core measure of nondefense capital goods excluding aircraft also dropped 1.4%. January’s orders were revised down to -0.1% from the previously reported 0.5%. Businesses postponed investment and spending amid weak global demand and the stronger US dollar.

US composite PMI rises to six-month high
Markit’s flash US composite purchasing managers’ index (PMI) rose to 58.5 in March, the best reading since September. The services sector gauge climbed to 58.6, also the best since September, while the manufacturing index moved up to 55.3, its highest point since October.

US consumer prices rise 0.2%, annual core inflation at 1.7%
The US Consumer Price Index — both headline and core (excluding fuel and food) — rose 0.2% in February. Core CPI rose 1.7% for the 12 months through February, the largest increase since November.

Home prices, sales edge up
US existing home sales rose a less-than-forecast 1.2% in February to an annual rate of 4.88 million units. Sales were down 6.5% in the Northeast on poor weather but were up or steady in other regions. US home prices increased 0.3% in January on a seasonally adjusted basis and 5.1% from a year earlier.

US jobless claims fall to 282,000
Initial claims for US unemployment benefits dropped 9,000 to 282,000 for the week ended 21 March. The four-week moving average fell 7,750 to 297,000. Continuing claims fell 6,000 to 2.42 million for the week ended 14 March.

US consumer sentiment dips in March
The University of Michigan consumer sentiment index final reading fell to 93, above forecasts but below the final February reading of 95.4.

China’s manufacturing activity contracts
The HSBC China Manufacturing PMI fell to a preliminary 49.2 in March — an 11-month low and below the threshold that separates expansion from contraction — possibly distorted by the Lunar New Year holiday. New orders, employment and prices all weakened as China’s slowdown extended into 2015.

Eurozone economic activity expands in March
The Markit composite PMI for the eurozone rose to a 46-month high of 54.1 in March from 53.3 in February, boosted by lower oil prices, the weaker euro and increased confidence as the European Central Bank’s purchases of government bonds have stimulated the region’s economy. Germany’s composite PMI rose to 55.3 in March from 53.8 in February.

German Ifo business index rises for fifth month
The Ifo Business Climate Index rose to 107.9 in March, the fifth straight monthly advance, following a survey that showed manufacturing and services growth at its fastest pace in eight months.

UK retail sales boosted by energy prices
The volume of UK retail sales rose 0.7% in February, the fifth consecutive monthly increase, as lower oil prices boosted consumer purchasing power.

US and global corporate news

Heinz acquires Kraft for $46 billion
US packaged food giants Heinz and Kraft announced plans to merge in a deal estimated at $46 billion — the largest merger so far in 2015 — and managed by Berkshire Hathaway and Brazilian firm 3G Capital Partners but no Wall Street investment banks. Heinz shareholders will own 51% of the combined firm, and Kraft shareholders will hold a 49% stake.

Creditor speaks out at RadioShack bankruptcy hearing
Bankrupt electronics retailer RadioShack’s rescue deal to keep 1,740 stores open and retain 7,500 jobs was attacked by its largest creditor, Salus Capital Partners, at a hearing Thursday. Under the deal’s terms, hedge fund Standard General would operate the stores in conjunction with wireless phone company Sprint, but Salus countered that it had offered substantially more in cash.

The week ahead

  • Japan’s manufacturing PMI is reported on Tuesday, 31 March.
  • The European Union’s manufacturing PMI is released on Wednesday, 1 April.
  • The US ISM manufacturing composite index is announced on Wednesday, 1 April.
  • The HSBC China Services PMI is released on Thursday, 2 April.
  • The US Department of Labor reports on the US Employment Situation on Friday, 3 April.

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 News; Financial Times; Forbes.com; CNNMoney.com; NBCNews.com.

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