Top Stories Last Week
• US Stocks Rose the First Time in Three Weeks
U.S. stock markets rose this week, the first time in three weeks. On Friday, stocks rose after a solid payrolls report cheered investors by suggesting that economic growth is strong enough to sustain relatively healthy job increases but not so strong that the Federal Reserve might cut back on its stimulus program. In the week, S&P index rose 0.8%, and MSCI EAFE index climbed 0.4%. The MSCI Emerging Market Index dropped by 1.0%. Gold price was off by 0.5%. The SPGC commodity index was up 2.9%. The bond markets were sold off. Barclays US Treasury index declined by 0.3%, and US high yield bonds was down 0.1%.
• US Manufacturing Activities Contracted in May
Manufacturing sector contracted in May as the ISM manufacturing index fell below 50 for the first time since November. The headline index fell more than expected, sliding from 50.7 to 49 for May. The details were weaker than they were in April, as new orders fell from 52.3 to 48.8. The inventory index bucked its normal tendency to decline in May, rising from 46.5 to 49. Therefore, the ISM manufacturing index may be weaker than it appears. Factory conditions, particularly non-auto, have deteriorated. Nevertheless, the next few months will remain difficult as the fiscal drag intensifies.
• European Central Bank Stood Pat on Interest Rates
The European Central Bank on Thursday debated ways to pour more credit to suffering euro zone businesses, but decided not to act. ECB was not sure which way the economy was heading. ECB president, Mario Draghi, said it had lowered its 2013 economic forecast for the euro area. The bank also left its benchmark interest rate unchanged at its already record low rate. The lack of any action illustrated the gap between those at the central bank who expect a weak recovery after a year and a half of contraction and economists and central bankers elsewhere who fear that the euro zone is sinking ever deeper into stagnation.
• US Added 175K Jobs and Unemployment Rate Rose to 7.6%
U.S. firms added 175K jobs in May, steady hiring but below the more robust pace that took place during the fall and winter. The unemployment rate rose to 7.6% from 7.5% in April. The increase occurred because more people came back to market looking for work, a good sign in the job market. The government said the economy added 12K fewer jobs in April and March. Employers have added an average of 155K jobs in past three months, below the average of 237K created from November through February.
The modest gains likely mean the Federal Reserve will continue its bond purchases. The Fed has said it will maintain its pace of bond purchases until the job market improves substantially. The purchases have helped drive down interest rates and boost stock prices.
• Japan Dipped Into Bear Market Briefly on Friday
On Friday, the high-flying Nikkei index posted further declines, at one point extending its slide from a trading high of 15,942.6 points on May 23 to more than 20%. While losses were trimmed by the close, the initial drop briefly put the leading index of Japanese stocks into a bear market. The index closed at 12,878, down 19.2% from its May 23 high. Even with the losses, Japan still boasts one of the best performing stock markets in the world. The Nikkei is up 24% for the year, compared with a gain of about 16% for the S&P 500 index.
Top Stories to Watch This Week
• US Retail Sales
US retail sales in May should rise 0.5%, according to economists, owing to better mix in auto sales and higher reported retail activities.
• Bank of Japan Interest Rate Decision
BOJ is expected to hold interest rates unchanged, but it may extend the term of its low interest fund provision.
• Iran will hold presidential elections on Friday.