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Week in Review: US data disappoint while Greek debt talks progress

For the week ended 1 May 2015

  • US economy at a standstill in Q1
  • Eurozone prices stabilize, euro rises
  • Spain’s GDP growth rebounds
  • Japan’s consumer prices edge up
  • China’s output shows signs of slowing

Global stock markets trended downward on weaker-than-expected first-quarter US growth, but after this slowdown, the US Federal Reserve is more likely to delay interest rate hikes beyond June. As the week ended, signs of progress in Greece’s negotiations with lenders over extending its financial bailout eased fears of a Greek eurozone exit.

The yield on the 10-year US Treasury moved above 2.0% for the first time in weeks while the yield on the 10-year German bund jumped sharply –– to 0.36% from 0.07% the previous week. Crude oil prices rose to 2015 highs, with Brent climbing above $66 per barrel and West Texas Intermediate approaching $60 per barrel.

US and global economic news

US economy grows at only 0.2% pace in Q1
US economic growth, as measured by gross domestic product, was only 0.2% at an annualized rate in the first quarter — below the consensus forecast of 1% and down from 2.2% in the fourth quarter. Consumer spending rose 1.9%, slightly better than expected despite harsh weather. But the trade deficit cut 1.25 percentage points from the GDP growth rate as the strong US dollar hurt exports.

Eurozone prices hold steady
Eurozone consumer prices were unchanged in April from a year earlier after falling for several months. Core inflation remained at an annual 0.6%. The euro rose to a two-month high of $1.129 versus the US dollar Friday in response to signs of the region’s economic recovery, along with US weakening.

Spain’s economy rebounds in Q1
Spain’s GDP grew 0.9% in the first three months of 2015, or more than 2.5% year over year. The eurozone’s fourth-largest economy appears to be rebounding and could expand at a pace exceeding 3% this year, according to economists.

Japan’s consumer prices rise slightly
A day after the Bank of Japan left monetary policy unchanged, the country’s core consumer price index rose 0.2% — the first increase in almost a year, though still far below the BOJ’s 2% annual target. Japan’s unemployment rate edged down to 3.4% in March from 3.5% in February as labor force participation fell.

China’s output slowing
China’s official manufacturing purchasing managers’ index was unchanged at 50.1 in April, while the nonmanufacturing PMI slowed to 53.4 in April from 53.7 in March. The Markit preliminary manufacturing PMI fell to a one-year low of 49.2 in April, indicating modest contraction.

US jobless claims fall to 15-year low
Initial claims for US unemployment benefits tumbled 34,000 to 262,000 for the week ended 25 April, the lowest level since April 2000. The four-week moving average fell 1,250 to 283,750. Continuing claims decreased 74,000 to 2.25 million for the week ended 18 April.

US economic data indicate ongoing challenges

  • The Conference Board’s index of consumer confidence fell to 95.2 in April from 101.4 in March, while the University of Michigan’s consumer sentiment index rose to 95.9 from 93.0 over the same period.
  • US consumer spending rose 0.4% in March after a 0.2% increase in February. Spending adjusted for inflation was up 0.3% in March. The core personal consumption expenditures (PCE) price index increased 1.3% over the 12 months through March.
  • The US employment cost index rose a seasonally adjusted annualized 0.7% in the first quarter. Wage and benefit costs rose 2.6% annually, up from 2.2% year over year in the second half of 2014.
  • The Markit preliminary service sector PMI fell to 57.8 in April from 59.2 in March, while the final manufacturing PMI slipped to 54.1 from 55.7, the slowest pace of growth so far this year.
  • The S&P/Case-Shiller index of national home prices rose 4.2% for the year ended in February. The index of home prices in 20 cities climbed 5%.

US and global corporate news

Apple profit jumps 33% on strong iPhone sales
Technology giant Apple reported a 33% jump in profit and a 27% increase in revenue in the first quarter on demand for the latest iPhone models, with sales up 40% to 61.2 million units. Sales of iPads fell 23% while Mac computers increased 10%. Revenue from China soared 71% to $16.8 billion.

Samsung earnings weaker than expected
Samsung Electronics
posted a 39% drop in quarterly net profit, worse than the expected 30% decline. Mobile operating profit margins rose to 10.6% from 7.5% in the fourth quarter as marketing costs fell and sales of midrange smartphones improved.

Big oil profits tumble, but beat estimates
Oil giants ExxonMobil and Chevron reported sharp drops in first-quarter earnings of 46% and 43%, respectively, though these results were better than expected. Exploration and production earnings at both firms fell around 63%, while refining and marketing earnings roughly doubled.

The week ahead

  • The Institute for Supply Management nonmanufacturing purchasing managers’ index is released on Tuesday, 5 May.
  • China reports its composite PMI on Tuesday, 5 May.
  • The European Union reports its composite PMI on Wednesday, 6 May.
  • The US Department of Labor releases the monthly employment situation on Friday, 8 May.
  • China reports consumer and producer price indices on Friday, 8 May.

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.

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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; Forbes.com; CNNMoney.com; NBCNews.com.

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