Week in Review: Slow Growth Persists

For the week ended 29 July 2016

  • US growth data disappoint
  • US Federal Reserve: Near-term economic risks have diminished
  • G20 leaders fear rising protectionism
  • EU appoints former French finance minister to negotiate Brexit
  • Democrats formally nominate Hillary Clinton for president

Against a backdrop of continued sluggish growth, global equities were little changed amid conflicting central bank outlooks from the US Federal Reserve and the Bank of Japan. Oil prices continued their decline, with West Texas Intermediate crude falling to $40.70 per barrel from $44.38 a week ago. Global Brent crude dropped to $40.72 from $45.83 last week. The Chicago Board Options Exchange Volatility Index (VIX) was unchanged this week at 12.72, while the yield on the 10-year US Treasury note fell to 1.49% from 1.58% last week.

GLOBAL ECONOMIC NEWS

US Q2 growth slower than expected
Economists had expected an uptick in US growth in the second quarter of the year, but today’s preliminary reading was very disappointing, as the economy grew at just a 1.2% annual rate, the US Bureau of Economic Analysis reported. On the bright side, US consumer activity was quite robust, but weak corporate investment was a drag on headline growth. Meanwhile, in the eurozone, Q2 growth came in at 1.6%, in line with the consensus forecast.

Fed takes a rosier economic view
The US Federal Reserve upgraded its outlook for the US economy, saying near-term risks have diminished while pointing to improved employment figures. Investors are contemplating the possibility of a hike in the US federal funds rate before the end of 2016, though Friday’s weak GDP data slightly cooled rate-hike fears.

Fearing backlash, G20 leaders call for shared growth
With populism on the rise, G20 leaders made efforts to emphasize “inclusive” growth as a core goal at their meeting last weekend in Chengdu, China. In the past, the group had stressed the desire for strong, sustainable and balanced growth, but changed its tone amid rising protectionist tendencies and growing frustration over inequality.

EU taps Barnier as Brexit negotiator
Michel Barnier, a former French finance minister, has been appointed the European Union’s chief Brexit negotiator. The appointment is seen as somewhat provocative by members of the UK financial community, given Barnier’s past tussles with London while he was finance minister and during his time as the EU’s single market commissioner. He will begin work in October.

Hillary Clinton accepts Democratic nod
The former US secretary of state was nominated to contest the US presidential election for the Democratic Party at its convention in Philadelphia. The convention also nominated Clinton’s choice for vice president, Senator Tim Kaine of Virginia.

Crackdown in Turkey draws response from EU
A crackdown on perceived enemies of Turkish president Recep Tayyip Erdogan continues in the wake of a failed coup two weeks ago. Jean-Claude Juncker, head of the European Commission, this week said there is no possibility for Turkey to join the EU, given the current circumstances, and that all negotiations will stop if Turkey reintroduces capital punishment.

Market disappointed by BOJ inaction
The Bank of Japan surprised markets on Friday by leaving interest rates and its bond-buying program unchanged after its policy-setting meeting on Friday. The only action from the BOJ was a modest expansion of its stock ETF buying program. Investors had hoped that the central bank and the Ministry of Finance would coordinate significant expansions of both monetary and fiscal policy. The yen exchange rate and the 10-year Japanese government bond yield surged after the decision.

Are the Olympics good for stocks?
According to FactSet Research, since 1900 the Dow Jones Industrial Average has increased in value 69% of the time during the summer Olympic Games. The average gain for the Dow was 1.8% during the games.

GLOBAL CORPORATE NEWS

Verizon buys Yahoo’s media business
After several rounds of bidding, Yahoo’s media business was auctioned to Verizon this week for $4.83 billion. The telecom firm will combine the Yahoo operation with its AOL business.

Oracle to buy NetSuite
Software giant Oracle will buy cloud computing firm NetSuite for $9.3 billion in cash, a 19% premium over the pre-bid market capitalization.

THE WEEK AHEAD

  • Global manufacturing purchasing managers’ indices are released on Monday, 1 August
  • Global service sector PMIs are released on Wednesday, 3 August
  • The Bank of England Monetary Policy Committee meets to set rates on Thursday, 4 August
  • The US employment report is released on Friday, 5 August

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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