JULEX MARKET WEEKLY 02-03-2013 | The US Equity Markets Scored the Best January Gains in 15 Years

Top Stories Last Week

• The US Equity Markets Scored the Best January Gains in 15 Years

U.S. stocks continued rising for the week, driven by solid corporate earnings and economic news. Standard & Poor’s 500 Index climbed 0.7% and 5.2% in January, the best percentage January gain in 15 years. MSCI EAFE index gained 0.7%, and MSCI emerging market index rose 0.7%. Gold climbed by 0.3% and the GSCI commodity index gained 2.3%. The bond markets continued to slide, Barclays US Treasury index lost 0.6% and US high yield bonds were lower by 0.9%.

• US Economy Contracted 0.1% in the Fourth Quarter

The U.S. economy posted a stunning drop of 0.1% in the fourth quarter, lower than expected and possibly providing supports for continuing Federal Reserve stimulus. The economy shrank for the first time since the recession ended in 2009, hurt by the big cut in defense spending, fewer exports and sluggish growth in company inventory. That’s a sharp slowdown from the 3.1% growth rate in the third quarter. Most economists believe that the drop could be caused by weather or other transitory factors.

• Geopolitical Risks in Middle East Rise

The geopolitical risks in Middle East have become news headlines again. Syria and its allies condemned an Israeli airstrike inside its borders, but did not indicate any immediate retaliation. It was reported that the strike was aimed at missile-laden trucks bound for Hezbollah. The anti-government protests continued in Egypt. The head of Egyptian army warned the state was on the verge of collapse. A suicide bomber attacked the US Embassy in Turkey.

• The Fed Continues Monetary Easing

The Fed will continue pumping money into the economy, holding steady on its monthly $85 billion purchase of bonds to stimulate the economy. The central bank noted weak growth in the final quarter of last year, saying that the pause in activity was due to weather and other transitory factors. Although strains in global financial markets have eased somewhat, the Fed continues to see downside risks to the economic outlook.

• US Nonfarm Payrolls Rose 157K and Unemployment Rate Inched Up to 7.9%

US Jobs grew modestly in January and gains in the prior two months were revised higher than initially reported, supporting views the economy’s sluggish recovery was on track despite a surprise contraction of GDP in the fourth quarter of 2012. Employers added 157K jobs to their payrolls in January. It was also reported that there were 127K more jobs created in November and December than previously reported. However, the unemployment rate inched up 0.1% to 7.9%. The report enforced the view that the Fed’s asset-purchasing program will continue.

• China’s manufacturing Activities Continued Improving

The official measure of the Purchasing Managers’ Index, released by China’s National Bureau of Statistics, came in at 50.4 for January. Another reading in a separate, privately-compiled survey by HSBC, put the PMI at 52.3, rising from November’s 51.5. Both reports pointed to continuing improvements in manufacturing activities in China, the second largest economy.

Top Stories to Watch This Week

• Are Stock Markets Going Down?

The Baltimore Ravens just won Super Bowl, beating 49ers. The last time Baltimore Ravens took home the trophy was in 2001 when they beat the New York Giants 34 to 7. The S&P 500 Index fell 13% while the Dow shed 7%.

• US ISM Non-Manufacturing Index

The US ISM non-manufacturing index is expected to tick down to 55, still well in expansion territory.

• ECB, BOE and RBA Meetings

The European Central Bank, Bank of England and Reserve Bank of Australia will meet this week. Economists expect no significant changes in policies.

• Retail Chain Sales

Major retail chains will report January sales, an important indicator of the consumer behavior.