Week in Review: Markets rebound from Russian worries on better data
For the week ended 7 March 2014
The week started with a jolt as Russia–Ukraine tensions rose, sending global stocks and the Russian ruble plummeting while pushing oil, gold and silver prices higher. The CBOE Volatility Index, known as a fear barometer, jumped more than 14% on Monday, its biggest one-day spike in a month. Once tensions eased, markets settled down. Stocks recovered from sharp losses, while yields on US, UK, German and Japanese government bonds climbed through the week. The S&P 500 Index hit yet another record high. For the week, global stock indices were mixed.
Although economic data generally showed the impact of abnormally harsh winter weather on a sluggish US economy, 175,000 jobs were added in February, many more than the roughly 150,000 estimated. Contributing to a rosier view of the US labor market, initial jobless claims fell by 26,000 in the latest weekly report.
The European Central Bank responded to more encouraging recent economic data by deciding not to take any stimulus actions at its meeting Thursday. China maintained its target of 7.5% economic growth for 2014, continuing its transition toward a more sustainable consumer-driven economy.
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US and global economic news
US job growth strong despite bad weather
US payrolls added a more-than-expected 175,000 jobs in February, while the unemployment rate rose to 6.7% from 6.6% the previous month. The gain in jobs was substantially higher than the 149,000 and 152,000 estimated in two newswire polls of economists. Weather apparently was a factor in the household survey that determines the jobless rate. It showed that more than 600,000 people with jobs stayed home because of bad weather, more than in any month since February 2010. The stronger-than-expected jobs report makes it more likely that the US Federal Reserve will continue the gradual tapering of monetary stimulus at its meeting on 18 – 19 March.
US weekly jobless claims fall by 26,000
In a further sign that the negative impact of harsh weather in January and February could be short-lived, initial claims for US jobless benefits fell by 26,000 to a seasonally adjusted 323,000 in the week ended 1 March. The four-week moving average fell by 2,000 to 336,500.
Fed Beige Book cites weather’s impact in Northeast
The Fed’s latest Beige Book report repeated a familiar theme. Severe weather, particularly in the Northeast, held back shopping and consumer spending in January and February. Two of the Fed’s 12 districts –– New York and Philadelphia –– reported falling activity largely as a result of particularly severe weather.
US data give mixed picture
Conflicting reports gave a mixed picture of the US economy this week. The Institute for Supply Management’s manufacturing index rose to 53.2 in February from 51.3 in January. According to reports from the US Department of Commerce for January, consumer spending rose 0.4%, although new orders for manufactured goods declined 0.7%, a sharper drop than expected. Productivity in the fourth quarter of last year rose at just a 1.8% annual rate, less than the previously reported 3.2% rate, according to the US Department of Labor. For all of last year, productivity edged up just 0.5%, the smallest annual gain since 1993.
US net worth rises 14%, household debt declines
Americans’ wealth grew 14% last year, or $9.8 trillion, from 2012, according to the Fed. The country’s household wealth is now at an inflation-adjusted record as a result of the stock market’s surge and rising home values. The average US household debt declined from 135% of disposable income in 2007 to about 109% in the fourth quarter of last year.
Economic factors help ease Russia–Ukraine tensions
The fear of rising aggression in the crisis between Russia and Ukraine eased during the week, largely because of strong economic ties between Russia and the West. The Russian stock market and ruble fell sharply Monday over concerns about the potential impact of a military escalation in Ukraine. Russia’s central bank raised interest rates to 7% from 5.5% as it sought to stabilize its currency and offset inflation. On the table as potential economic tools to use against Russia are widespread economic sanctions and the cancelation of a G8 meeting scheduled for Sochi in June.
Russia–Ukraine concerns, rising US inventories buffet oil prices
US oil prices had a volatile week. An initial spike Monday came in response to Russian troop activity in and around Ukraine. After reaching $105 per barrel early in the week, the price of oil dipped close to $100 early Thursday morning before climbing above $102 again. Keeping prices lower were a larger-than-expected rise in US oil inventories and the easing of Russia–Ukraine tensions.
Eurozone expansion picks up in January
The eurozone’s composite purchasing managers’ index rose to 53.3 in February from 52.9 in January, the sharpest rise since June 2011. Separately, the European Union’s statistics agency reported that the region’s monthly retail sales grew in January by the largest amount in more than 12 years. At its regular policy meeting, the European Central Bank responded by deciding not to add any further economic stimulus.
UK outlook brightens, PMI points to 2.8% annual growth
The United Kingdom’s composite PMI for February points to further economic expansion during this quarter. Quarterly gross domestic product growth is estimated at 0.7%, or an annualized 2.8%. The country’s employment index rose to a 16-year high in February.
China maintains 7.5% growth target
China will maintain its 2014 economic growth target at 7.5%, the government announced Wednesday. While this is the same growth rate as last year, it is a major decline from the average of 9.9% annual growth over the past few decades. China’s growth rate is expected to drop to 5% by 2026 – 2030, according to projections from the World Bank and China’s Development Research Center.
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US and global corporate news
RadioShack to close 1,100 stores
Consumer electronics retailer Radio Shack will close up to 1,100 stores –– one-fifth of all its stores –– as it grapples with a sharp loss in revenue. The retailer of technology accessories and electronics gadgets is struggling to adapt to changes in the competitive electronics business. Same-store sales fell by 19% over the holiday quarter. Sales of telephones, tablets and accessories, which make up about half of the chain’s sales, were particularly weak.
Staples to close 225 stores by end of next year
As part of a $500 million cost-saving program, office supply retailer Staples will close 225 stores by the end of 2015. Staples’ same-store sales in North America fell 7% in its fiscal fourth quarter as traffic dropped 6% and the average order size fell 1% lower. Same-store European sales fell only 1%. Staples and its retail rivals have faced increased competition from online stores. As a result, Staples is promoting online sales at Staples.com.
Costco earnings fall 15% in latest quarter
Discount club Costco reported a 15% drop in profit for its fiscal second quarter. Costco was hurt by weaker foreign exchange rates, less profitable international operations and poor sales of nonfoods merchandise. In contrast with other discount clubs, Costco’s sales growth has slowed recently.
Apple–Samsung legal skirmishes continue
In the latest chapter of the Apple–Samsung Electronics legal battle over patents, a US judge denied Apple’s request for a permanent injunction against Samsung’s mobile products. But in another patent case between the two smartphone giants, Apple was awarded $930 million in damages from Samsung. Later this month, a new Apple–Samsung trial will begin involving a different set of Apple patents used in more recent Samsung products, including the Galaxy S III smartphone.
The week ahead
- The NFIB Small Business Optimism Index is released on Tuesday, 11 March.
- The European Union reports its industrial production on Wednesday, 12 March.
- China reports its industrial production and retail sales on Wednesday, 12 March
- US retail sales and import and export prices are reported on Thursday, 13 March.
- The University of Michigan releases its preliminary estimate for US consumer sentiment on Friday, 14 March.
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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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