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Week in Review: US Growth Revised Up

For the week ended 27 May 2016

  • Q1 US GDP revised up to 0.8% from 0.5%
  • Flash PMIs soft
  • EU kicks Greek debt can down the road again
  • Oil revisits $50 a barrel

Global equities rallied this week as the market digested the possibility of a rate hike from the US Federal Reserve at either its June or July meeting. Firmer oil prices helped, with West Texas Intermediate touching $50 this week. WTI crude prices rose to $49.11 from $48.30 last week, and global Brent crude prices were little changed, rising to only $49.08 from $48.96 a week ago. The Chicago Board Options Exchange Volatility Index (VIX) declined to 13.44 from 16.08 a week ago, while the yield on the 10-year US Treasury note fell to 1.84% from 1.865%.

GLOBAL ECONOMIC NEWS

US GDP revised slightly higher
The US economy grew slightly faster in the first quarter, revised data showed on Friday. Economic output advanced at a still-sluggish 0.8% annual rate, according to the US Bureau of Economic Analysis. Growth in the second quarter looks to be a bit more robust, with growth estimates running around 2.5%.

Global growth losing steam
J.P. Morgan estimates its global composite purchasing managers' index will decline to 51 in May when all the component parts are released. With the PMI at that level, the firm suggests that global growth would slow to just 1.8%.

EU reaches Greek debt deal
Greece will avoid another debt crisis with upwards of €10 billion in financial aid from the eurozone. The money will be disbursed in time for Greece to make its next round of debt payments, which come due in July. The deal was reached between eurozone finance ministers and the International Monetary Fund. It includes limited debt relief for Greece — but not until 2018, after elections in some of the eurozone's largest member states.

Oil extends rally
Crude prices briefly surpassed the $50 mark this week before closing out the week at just a shade over $49. Supply disruptions in Canada and Nigeria helped underpin prices.

G7 leaders vow to boost global growth
The leaders of the seven leading industrial nations said they will use all of the policy tools at their disposal to boost demand and reduce supply constraints. World growth is moderate and running below potential, and the risk of persistently slow growth remains, the leaders said in a communiqué. While vowing to avoid competitive currency devaluations, the leaders warned against wild exchange rate moves. This part of the statement was seen as a compromise between the United States and Japan, given the recent strength of the yen.

Japan tax hike may be delayed
A scheduled further increase in Japan's sales tax may be delayed three years, according to media reports. Given the weak global economic backdrop, many fear an additional tax hike could throw the Japanese economy back into recession.

GLOBAL CORPORATE NEWS

Monsanto gently rejects Bayer bid
Agrichemical giant Monsanto this week rejected a $62 billion takeover bid from Germany's Bayer, but kept the door open for an agreement should the bid be sweetened, saying it is open to continued and constructive conversations.

Hewlett-Packard spinoff spins off
Hewlett-Packard Enterprise, a company spun off of HP some months ago, is spinning off its enterprise services business to Computer Sciences Corporation in an all-stock deal. The new company will be worth roughly $9 billion.

 THE WEEK AHEAD

  • Japan reports retail sales on Monday, 30 May
  • The US and UK markets are closed on Monday, 30 May for Memorial Day and the Spring Bank Holiday, respectively
  • Manufacturing PMIs are reported globally on Wednesday, 1 June
  • Service sector PMIs are reported globally on Friday, 3 June
  • The US unemployment report will be released on Friday, 3 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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