Top Stories Last Week
- Global Stocks Kicked Off a Good Start in the New Year as Fiscal Cliff was Averted
Global stock markets soared last week as the politicians in Washington reached a deal to avert “fiscal cliff”. Standard & Poor’s 500 Index jumped 4.5%, MSCI EAFE index rallied 2.6% while MSCI emerging market index climbed 3.2%. Gold lost 0.1% while the GSCI commodity index was up slightly 0.3%. In the bond markets, Barclays US Treasury index lost 1.4% as Fed was concerned about risks of ultra-loose monetary policy on capital markets. US high yield bonds were higher by 1.1%.
- US Congress Reached a Last-Minute Deal to Avert “Fiscal Cliff”
US congress avoided the “fiscal cliff” with a deal that raises the top income tax bracket to 39.6%, from 35%, on households earning at least $450K. The investors will also pay higher taxes on dividends and capital gains. The deal delayed the $110 billion of spending cuts by two months and did not address the debt ceiling. There is no “grand bargain” here. Politicians kicked the can down the road again.
- Global Manufacturing Activities Continued to Improve
The Institute for Supply Management reported that the overall manufacturing index rose to 50.7 last month, up 1.2 points from November. The US factory activities were back to the expansion.
China’s official monthly manufacturing survey showed conditions in December unchanged from the month before at 50.6. However, the HSBC’s own China manufacturing PMI jumped to 51.5 from November’s 50.5.
The euro zone’s deep economic downturn eased somewhat in December, according to the latest PMI reading for the month, but the region still saw a contraction in private-sector activity for the eleventh consecutive month. The euro-zone composite index rose to a nine-month high of 47.2 from 46.5 in November.
- US Payrolls Gained and Unemployment Rate Stayed Steady
US added 155K jobs in December and jobless rate inched higher to 7.8%, in line with economists’ expectation. However, a broader measure of unemployment–which includes job seekers as well as those stuck in part-time jobs–was 14.4% in December. The labor department showed even with the job growth, 12.2 million people who wanted a job couldn’t find one, a slight increase from November. The slow job market provides another indication that the US economy just muddles along. The US may be stuck at low growth, high unemployment for a while.
- Fed Minutes Showed Divide among Members on When to End Quantitative Easing
Despite maintaining aggressive stimulus measures last month to support the recovery and bring down high unemployment, Federal Reserve policymakers were divided on when they might end their bond-buying programs, according to the minutes of FOMC meeting. The split suggests that the Fed could halt its asset purchases sooner than many investors are expecting. Gold price dropped after the minutes were released.
Top Stories to Watch This Week
- Earnings Season Starts
Alcoa will kick off the four-quarter earnings season on Tuesday. LPL Financial, Monsanto and Wells Fargo will also report earnings this week.
- Spanish Bond Auction
Spain will auction two-year notes, refocusing market attention to European debt issues.
- ECB and BOE Meetings
European Central Bank and Bank of England will meet to decide on monetary policies. Economists expect both ECB and BOE to maintain the loose policies.
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