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Week in Review: Uncertainty over Greece weighs on markets

For the week ended 29 May 2015

  • US GDP shrinks 0.7% in Q1
  • US new home sales, pending sales, prices rise
  • UK economy expands, Canadian and Swiss GDP contract
  • Eurozone confidence remains high despite Greek risk
  • Charter to buy Time Warner Cable for $55 billion

Concerns over Greece’s ability to complete a deal and avert its exit from the eurozone weighed on markets. Adding to investor uncertainty, several major economies — including the US, Canada and Switzerland — reported first-quarter contraction. Major global indices were mixed, with most giving up ground.

The 10-year US Treasury yield slipped back to 2.11%, and the 10-year German bund yield fell to 0.5%. The US dollar generally gained strength, while the price per barrel of Brent crude oil and WTI oil futures eased to about $64 and $59, respectively.

US and global economic news

US GDP revised to 0.7% decline in Q1
The US economy contracted in the first quarter by 0.7% annualized, revised down from the initial estimate of 0.2%. Key factors were the larger trade deficit, smaller inventory accumulation and weaker consumer spending than first estimated, compounding the impact of an unusually harsh winter.

US pending home sales, new home sales rise
Pending home sales based on signed contracts for purchases of previously owned homes rose 3.4% to a seasonally adjusted 112.4 in April —14% above the previous year and the highest level since May 2006. Sales of new homes climbed 6.8% in April to a seasonally adjusted annual rate of 517,000.

US home prices rise 4.1%
US home prices continued to rise in March, according to the S&P/Case-Shiller Home Price Index. Over the 12 months ended in March, the national index rose 4.1%, the 20-city index gained 5% and the 10-city index climbed 4.7%.

US durable goods fall, but core gauge improves
Demand for goods built to last three or more years fell 0.5% in April after a revised 5.1% gain in March. April orders for nondefense capital goods excluding aircraft — the core indicator of company spending on equipment and software — increased 1%, while March core orders were revised up to 1.5%.

Measures of consumer attitudes advance
The US Conference Board’s index of consumer confidence rose to 95.4 in May from a downwardly revised 94.3 in April. The University of Michigan’s consumer sentiment gauge rose to a final reading of 90.7 for May from 88.6 at midmonth.

Markit US gauges fall
The Markit preliminary services sector PMI (purchasing managers’ index) fell to 56.4 in May from a final April reading of 57.4. Markit’s composite PMI and the new business gauge also fell.

US weekly jobless claims increase by 7,000, still historically low
Initial unemployment insurance claims rose 7,000 to 282,000 for the week ended 23 May — the 12th consecutive week below 300,000. The four-week moving average rose by 5,000 to 271,500, and continuing claims climbed 11,000 to 2.22 million for the week ended 16 May.

UK GDP grows for ninth straight quarter
The UK economy grew 0.3% in the first quarter as consumer spending and business investment more than offset weak trade data. UK GDP has expanded for nine straight quarters, the longest expansion since 2008.

Canada’s economy shrinks for first time since 2011
Canada’s GDP slipped by 0.6% annualized in the first quarter — the first quarterly contraction in four years. Collapsing energy prices caused a sharp drop in business investment.

Swiss economy contracts unexpectedly
Switzerland’s GDP fell 0.2% in the first quarter — the most in six years — as the franc’s record surge after its depegging against the euro posed a large hurdle for exporters.

Eurozone confidence high despite Greece concerns
Eurozone economic confidence remained near a four-year high in May as businesses and consumers shrugged off concerns over the broader risks associated with Greece’s potential default. Confidence rose among manufacturers, retailers, service providers and construction firms. Consumers also remained relatively upbeat, albeit slightly less optimistic about the economic outlook and their job prospects.

German consumer confidence rises, while France’s falls
The GfK group’s forward-looking German consumer confidence index rose above consensus forecasts to 10.2 for June. France’s consumer confidence, on the other hand, slipped from the multi-year highs reached in March, according to the French statistical agency Insee.

US and global corporate news

Charter to buy Time Warner Cable for $55 billion
Charter Communications has agreed to buy Time Warner Cable for $55 billion in cash and stock, valuing the company at $78.7 billion, including debt. The deal would combine the second- and third-largest US cable companies to better compete against the market leader Comcast, and has raised the scrutiny of the Federal Communications Commission.

Avago to buy Broadcom in $37 billion semiconductor deal
Singapore’s Avago Technologies will buy California-based Broadcom, creating the world’s sixth largest chipmaker by revenue in the industry’s largest acquisition. Broadcom’s connectivity chips integrate WiFi and Bluetooth technology for smartphones made by Apple and Samsung Electronics. This is the latest in a round of industry consolidation driven by rising costs.

The week ahead

  • The ISM manufacturing PMI for the US is reported on Monday, 1 June.
  • China releases its composite PMI on Tuesday, 2 June.
  • The eurozone composite PMI is released on Wednesday, 3 June.
  • The European Union reports preliminary Q1 GDP growth on Friday, 5 June
  • The US employment situation is released on Friday, 5 June.

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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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