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Week in Review: Brighter data cheer markets

For the week ended 27 February 2015

  • US GDP growth revised down to 2.2% for fourth quarter
  • US service sector expands, home prices rise, and confidence falls
  • Greece receives four-month bailout extension
  • Eurozone sentiment rises

Global economic data turned brighter this week, driving stocks higher. Greece and its creditors agreed to a four-month extension on its financial lifeline, settling immediate concerns of a “Grexit” from the eurozone.

US fourth-quarter gross domestic product growth was revised downward slightly, consumer prices dipped in January and durable goods orders rose, along with services sector activity.

German GDP growth, consumer sentiment and unemployment rate improved. China’s manufacturing data rose slightly, while UK fourth-quarter economic growth slowed to 0.5% from an initial 0.7% estimate.

Oil prices were volatile, with US crude oil prices down slightly for the week. The 10-year US Treasury yield fell as low as 1.93% on Thursday before breaching 2.0% again on Friday.

US and global economic news

US economic growth revised down for fourth quarter
Slower business inventory accumulation and a wider trade deficit led to fourth-quarter GDP growth being revised to 2.2% from the initial estimate of 2.6%. The 4.2% pace of growth in consumer spending was the fastest since the first quarter of 2006. The good news is that the lower inventory buildup is expected to boost first-quarter GDP growth.

US economic reports were generally positive

  • Durable goods orders rose a seasonally adjusted 2.8% in January, with orders for nondefense capital goods excluding aircraft climbing 0.6% after declining for four months.
  • The Markit flash purchasing managers’ index for services rose to 57.0 in February from 54.2 in January.
  • The US Consumer Price Index fell a seasonally adjusted 0.7% in January from December, and 0.1% from a year earlier, the first annual decrease since October 2009. Excluding energy and food, prices rose 0.2% for the month and 1.6% from the previous year.
  • The University of Michigan’s final reading on February US consumer sentiment was 95.4, higher than expected but down from January’s 11-year high of 98.1.
  • The Conference Board’s index of consumer attitudes fell to 96.4 in February from an upwardly revised 103.8 in January.
  • The S&P/Case-Shiller composite index of home prices in 20 metropolitan areas climbed 4.5% for the year ended in December, up from the 4.3% growth rate through November.

US jobless claims rise sharply to 313,000
Initial claims for US unemployment benefits jumped 31,000 to 313,000 for the holiday-shortened week ended 21 February. The four-week moving average rose 11,500 to 294,500.

Greece and creditor institutions reach agreement
Greece’s anti-austerity government and its creditors agreed to a four-month extension of the country’s bailout. While this merely delays an ultimate resolution, it averts the immediate risk of a debt default and the possible departure of Greece from the eurozone.

Eurozone economic sentiment improves
Economic sentiment in the eurozone rose to a seven-month high in February. Bank lending to the private sector fell 0.1% in January after a 0.5% decline in December, suggesting a possible turnaround after three years of decline.

Germany shows signs of rebound
The German economy expanded 0.7% in the fourth quarter and 1.6% for the full year. Its jobless ranks fell by 20,000 to 2.81 million in February, after a 10,000 drop in January, and the unemployment rate of 6.5% is the lowest in more than two decades. The GfK consumer sentiment index among German shoppers reached a 13-year high in March.

India’s economy could grow more than 8% in 2015
India’s Ministry of Finance forecast economic growth of 8.1% to 8.5% in fiscal 2015, which would place the country ahead of China as the world’s fastest-growing large economy. India is on track to grow 7.4% for the current fiscal year ending 31 March.

Brent crude oil set for 15% monthly gain
Volatility in crude oil prices continued this week, with large daily ups and downs. During February, Brent prices rose by around 15% — the biggest monthly gain since May 2009 — to more than $61 per barrel from January’s closing price of $53. US oil prices had a modest 1.3% monthly gain, ending at about $49.

US and global corporate news

Valeant to buy Salix for $14.5 billion
Canada’s Valeant Pharmaceuticals International agreed to acquire Salix Pharmaceuticals for an enterprise value of $14.5 billion. Salix makes gastrointestinal drugs including Xifaxan. Last year, Valeant failed to acquire Botox-maker Allergan in a hostile bid.

Home Depot, Lowe’s sales rise briskly
Home improvement chains Home Depot and Lowe’s reported stronger-than-expected same-store sales in the fourth quarter ended in January, at 7.9% and 7.3%, respectively. Quarterly earnings at both firms also exceeded expectations.

HP earnings hurt by strong dollar
Hewlett-Packard reported a 4.7% decline in fourth-quarter revenue from the previous year, hurt by the strong US dollar. Quarterly earnings were well below expectations.

Target sales at three-year high
Retail chain Target reported its best sales growth in almost three years in the fourth quarter. Same-store sales rose 3.8%, surpassing the firm’s goal. However, the company’s exit from Canada was costly, leading to a loss of more than $2.64 billion versus a $520 million profit a year earlier.

The week ahead

  • US manufacturing data are released on Monday, 2 March.
  • Japan and China release composite purchasing manager indices on Tuesday, 3 March.
  • The European Union reports its composite PMI on Wednesday, 4 March.
  • The European Union reports fourth-quarter GDP on Friday, 6 March.
  • The US Employment Situation is released on Friday, 6 March.

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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