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Week in Review: Fed's dovish signals cheer markets

For the week ended 20 March 2015

  • Fed’s dovish stance soothes rate hike concerns
  • US economic data show slowdown
  • Greece promises to cooperate with EU
  • Japan’s export growth slows
  • German business confidence improves

In a volatile week, markets initially rallied on the US Federal Reserve’s surprisingly dovish economic projections that accompanied its policy statement. The US dollar fell, as did the yield on the 10-year Treasury note. After sliding earlier in the week, the price of crude oil rallied along with stocks.

For the week, global stocks made broad gains and interest rates on US, UK, German and Japanese government bonds fell. US economic reports indicated a weather-related slowdown in housing activity and industrial production, though labor data remained strong.

US and global economic news

Fed appeases markets with dovish statement
The US Federal Reserve removed “patient” from its policy statement on Wednesday, as widely expected, while also sending a more dovish message by saying that growth has “moderated somewhat.” Fed officials also cut their median year-end estimate of the federal funds rate from 1.125% to 0.625%, which is closer to the market consensus. This suggests that the possibility of an interest rate hike as early as June has become more remote.

US economic data indicate first-quarter slowdown

  • US industrial production rose 0.1% in February, after January figures were downgraded to a 0.3% decline from the 0.2% gain initially reported. US manufacturing output was down 0.2% in February, the third straight month of contraction. Industrial capacity utilization fell to 78.9%.
  • Held back by harsh weather, US housing starts fell 17% in February to a seasonally adjusted annual pace of 897,000 units, their lowest level in a year.
  • US homebuilder confidence fell to an eight-month low of 53 in March from 55 in February, but this diffusion index of sentiment is still in positive territory above 50.

US jobless claims rise to 291,000
Initial claims for US unemployment benefits increased 1,000 to 291,000 for the week ended 14 March. The four-week moving average rose 2,250 to 304,750. Continuing claims fell 11,000 to 2.42 million for the week ended 7 March.

Greece to cooperate on reforms
In ongoing negotiations, the Greek government has agreed to provide the European Union with an overview of proposed economic reforms as it seeks an extension on its bailout loan. With a major shortfall in tax revenues for 2014 and no access to bond markets or European Central Bank emergency facilities, Greece is at risk of bankruptcy.

Japan’s export growth subsides
Japan’s exports rose 2.4% by value for the year through February, the sixth straight monthly gain, but declined 2.1% by volume, the first drop in three months. As imports fell 3.6% by value on lower oil prices, the country’s trade deficit shrank to ¥424.6 billion from ¥806 billion a year earlier.

German business confidence rises for fifth month
The Center for European Economic Research (ZEW) reported a fifth straight monthly increase in its index of German investor and analyst expectations of economic developments six months in advance. However, investor confidence rose less than expected in March because of uncertainty over Greece’s future in the eurozone.

US and global corporate news

Mall owner ups bid for rival
Indianapolis-based Simon Property Group, the largest US mall owner, made a second takeover bid for Los Angeles–based Macerich days after the smaller rival rejected its initial offer, which Macerich said substantially undervalued the company. Simon said this final offer would be withdrawn if no deal is negotiated by 1 April.

European cement company giants maneuver over merger
Cement giants Lafarge of France and Holcim of Switzerland appear to have salvaged their $44 billion proposed merger at new terms more favorable to Holcim, which has outperformed Lafarge since the original terms were proposed last year. Lafarge CEO Bruno Lafont was to be the new firm's CEO but is now slated to be nonexecutive co-chairman along with Holcim’s chairman.

Canada’s Valeant sweetens offer for Salix
Canada’s Valeant Pharmaceuticals boosted its takeover bid for Salic Pharmaceuticals to $10.96 billion cash to fend off an offer from Endo International. Salix would be Valeant’s largest in a series of acquisitions. The deal is expected to close on 1 April.

Oracle earnings hurt by stronger dollar
Technology software giant Oracle reported a 2.7% decline in net income and flat earnings per share for its third quarter ended 28 February. Revenue fell slightly short of Wall Street expectations, as Oracle was hurt by the strong US dollar, but its revenue from cloud software offerings rose 29%.

FedEx third-quarter profit soars
Package delivery firm FedEx reported a 53% increase in third-quarter profit, benefiting from lower fuel costs, robust holiday shipments and a restructuring program. The firm narrowed expectations for its full-year outlook, saying fourth-quarter growth could weaken on higher fuel costs and the strong US dollar.

The week ahead

  • US existing home sales are reported on Monday, 23 March.
  • China reports its flash manufacturing purchasing managers’ index on Monday, 23 March.
  • The European Union's reports flash composite PMI is released on Tuesday, 24 March.
  • Japan’s consumer price index, unemployment rate and retail sales are released on Thursday, 26 March.
  • The US Department of Commerce updates fourth-quarter GDP on Friday, 27 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.

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Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times;;;

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