Top Stories Last Week
• US Stocks Reached New Record
US stocks reached new record after Fed Chairman Bernanke’s comments on monetary policy in NBER meeting. He explained that even if the Fed slows down purchases of bonds, it will keep interest rates low for a long time. In the week, S&P index rose 2.8%, and MSCI EAFE index climbed 3.4%. However, the MSCI Emerging Market Index rallied by 3.9%. Gold price reversed course and jumped 5.1%. The SPGC commodity index climbed by 3.5% as oil prices continued rising. The bond markets gained as well. Barclays US Treasury index was up by 1.3%, and US high yield bonds rose 3.0%.
• Fed will Keep Interest Rates Ultra-low for a Long Time
Fed Chairman Ben Bernanke was commenting on monetary policy following the speech he just delivered at the NBER conference in Boston this afternoon. The Federal Reserve chairman is striking a decidedly dovish tone in the Q&A. His remarks help to clear up the confusion that has gripped the market in recent weeks. He said that because the Fed may begin tapering soon, interest rates will still be pinned at current ultra-low levels for a long time. The unemployment rate, a key indicator that will determine the future path of Fed monetary policy, probably understates the weakness in the U.S. labor market. That the onset of tapering should not be taken as a sign of an imminent rate hikes is something that the Fed has communicated in various ways, but has not spelled out this cogently or forcefully.
• Alcoa Kicked off the Q2 Earnings Season
Alcoa kicked off the second-quarter earnings season with a steep net loss of 119MM. However, it was a very good start for bank earnings as both J.P. Morgan Chase and Wells Fargo topped analyst forecasts. The question for both remains how they will adjust to higher interest rates. J.P. Morgan Chairman and CEO Jamie Dimon says mortgage originations will suffer markedly if rates remain at current levels, while Wells Fargo chief John Stumpf says that, even as refis slump, the servicing business will do better.
• Bank of Japan Kept its Super-size Stimulus Unchanged
The Bank of Japan kept its super-easy monetary policy unchanged. The BOJ is expanding the monetary base by about 60 trillion yen ($606 billion) to 70 trillion yen ($707 billion) over two years by purchasing Japanese government bonds. Japan’s central bank upgraded its assessment of the economy’s prospects after earlier this year implementing an ambitious monetary policy aimed at boosting inflation and growth.
• Chinese Inflation Rate Rose to 2.7% in June
China’s inflation rate rose by more than expected in June, increasing to 2.7% from 2.1% the month before. Food price inflation was 4.9% in June, compared with 3.2% in May, with rising pork prices partly to blame. While the headline inflation number was above analysts’ expectations, it remains below the government’s target figure of 3.5%. Analysts say the latest figure reduces the prospect of interest rate cuts in 2013. Cutting interest rates risks inflating a property bubble, while tightening may put additional pressure on the economy in the middle of the current global economic uncertainty. The report may put the central bank to a neutral stand.
• European Industrial Production Slip 0.3% in May
Industrial production slipped 0.3% from April to May in the euro zone and 0.6% in the European Union. Production declined 1.3% in the 17-member currency region and 1.6% in the larger European Union from May of last year. There is no light at the end of tunnel for the euro zone’s recession.
Top Stories to Watch This Week
• China’s GDP, retail sales and industrial production
China’s second quarter GDP is expected to rise 1.8% and 7.5% on a year-over-year basis. The retail sales will grow 12.9% and industrial production to grow 9.1% YOY in June.
• Bernanke’s Testimony Before Congress
Fed Chairman Ben Bernanke will give his semiannual testimony on monetary policies before Congress.
• More Bank Earnings Reports
Bank of America, Bank of New York Mellon, US Bancorp, Capital One and Key Corp. will report quarterly results.