Week in Review: US Retail Sales Bounce Back

For the week ending 13 October 2017

  • US retail sales improve, CPI boosted by gasoline
  • IMF nudges up global growth forecast
  • Brexit talks at apparent impasse
  • FOMC on course for December rate hike

Global equities reached new peaks this week as US interest rates pulled back from recent highs. The 10-year US Treasury note receded to 2.28% from 2.38% a week ago. Oil recouped some recent loses, rising to $51.50 per barrel from $49.50 last Friday. Equity volatility remains muted, trading at 9.85, little changed from last week's reading of 9.50.

MACRO NEWS

US retail sales rebound in September
After dipping 0.2% in August, US retail sales rebounded strongly in September, rising 1.6%. Higher gasoline prices in the wake of Hurricane Harvey and a jump in auto sales were major contributors. Higher gas prices also contributed to a 0.5% advance in the Consumer Price Index in September. Stripping out food and energy, prices rose a muted 0.1% last month.

IMF kicks off fall meeting with growth upgrade
As finance ministers and central bankers gather in Washington this week for the fall meetings of the International Monetary Fund (IMF) and World Bank, IMF economists released their latest World Economic Outlook. The fund’s growth forecast was slightly more upbeat, with global gross domestic product expected to expand 3.6% this year and 3.7% in 2018, a 0.1% increase from the last update in July. IMF chief economist Maurice Obstfeld called the current global acceleration notable because it is more broad-based than at any time since the start of this decade. This year runs counter to many recent years when economists were forced to trim overly optimistic forecasts rather than raise them.

Juncker: Pay first, talk later
European Commission president Jean-Claude Juncker said on Friday that the United Kingdom would need to pay its “divorce bill” before discussions can proceed on trade and future relations between the UK and the European Union. The EC leader said that negotiations have advanced more slowly than expected and that it is unlikely the European Council will agree when it meets next week that sufficient progress has taken place for negotiations on the future relationship to begin. Earlier in the week EU chief Brexit negotiator Michel Barnier said discussions on the financial settlement were deadlocked.

Fed signals December rate hike likely
Minutes from the September meeting of the US Federal Reserve's Federal Open Market Committee show that “many” members thought another rate hike was likely to be warranted late this year if the economic outlook remains roughly unchanged. However, some members expressed concerns that recent soft inflation data may not be temporary, owing to idiosyncratic factors, as the committee has stated in the recent past. Falling prices for things such as mobile phone service and prescription drugs have temporarily suppressed inflation, according to the Fed.

Trump takes executive action on health care
With efforts to repeal and replace the Affordable Care Act stymied in Congress, US president Trump this week issued an executive order to reform the health care sector. The order allows employers to band together to form groups, potentially lowering the cost of coverage. It also allows insurers to offer coverage across state lines. In addition, the administration is expected to announce later today that it will halt payments to insurers to offset government subsidies for low-income purchasers. Insurance carriers have been raising premiums in recent months in anticipation that the payments would be halted.

ECB setting stage for next policy phase
The European Central Bank appears to have floated several trial balloons in the press this week as it moves toward shifting its exceptionally easy stance toward monetary policy before the end of the year. One proposal reportedly being considered by the ECB is to cut in half the rate at which it buys European bonds, from €60 billion to €30 billion beginning in January, and keeping the program active for at least nine months. At the same time, ECB president Mario Draghi said in Washington that policy rates will not be raised until well past the end of quantitative easing. Markets appear to be focusing on the policy rate forecast more than the QE rumors, with 10-year German bund yields falling 4 basis points on Friday to 0.41%.

THE WEEK AHEAD

Date

Country/Area

Release/Event

Sun, 15 Oct

United States

Yellen speech at G30 International Banking Seminar

Mon, 16 Oct

China

Consumer Price Index

Mon, 16 Oct

Japan

Industrial production

Tue, 17 Oct

United Kingdom

Consumer Price Index

Tue, 17 Oct

eurozone

Consumer Price Index

Tue, 17 Oct

US

Industrial production

Wed, 18 Oct

US Fed's Beige Book

 Thu, 19 Oct

China GDP, retail sales, industrial production

 Thu, 19 Oct

UK Retail sales

 Fri, 20 Oct

US Existing home sales

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.

Issued in the United States by MFS Institutional Advisors, Inc. ("MFSI") and MFS Investment Management. Issued in Canada by MFS Investment Management Canada Limited. No securities commission or similar regulatory authority in Canada has reviewed this communication. Issued in the United Kingdom by MFS International (U.K.) Limited ("MIL UK"), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS, has its registered office at One Carter Lane, London, EC4V 5ER and provides products and investment services to institutional investors globally. This material shall not be circulated or distributed to any person other than to professional investors (as permitted by local regulations) and should not be relied upon or distributed to persons where such reliance or distribution would be contrary to local regulation. Issued in Hong Kong by MFS International (Hong Kong) Limited ("MIL HK"), a private limited company licensed and regulated by the Hong Kong Securities and Futures Commission (the "SFC"). MIL HK is a wholly-owned, indirect subsidiary of Massachusetts Financial Services Company, a US based investment adviser and fund sponsor registered with the US Securities and Exchange Commission. MIL HK is approved to engage in dealing in securities and asset management regulated activities and may provide certain investment services to "professional investors" as defined in the Securities and Futures Ordinance ("SFO"). Issued in Singapore by MFS International Singapore Pte. Ltd., a private limited company registered in Singapore with the company number 201228809M, and further licensed and regulated by the Monetary Authority of Singapore. Issued in Latin America by MFS International Ltd. For investors in Australia: MFSI and MIL UK are exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in respect of the financial services they provide to Australian wholesale investors. MFS International Australia Pty Ltd (" MFS Australia") holds an Australian financial services licence number 485343. In Australia and New Zealand: MFSI is regulated by the US Securities & Exchange Commission under US laws and MIL UK is regulated by the UK Financial Conduct Authority under UK laws, which differ from Australian and New Zealand laws. MFS Australia is regulated by the Australian Securities and Investments Commission.

 

37162.41