Top Stories Last Week
• US Stocks Declined From Record Highs
Volatility came back to the stock markets last week. Bernanke’s testimony and data showing China’s manufacturing sector contracted, sent the shares in global plummeting. Japan’s Nikkei sank 7.3% before recovering later. In the week, S&P index dropped 1%, and MSCI EAFE index declined 2.5%. The MSCI Emerging Market Index declined by 2.7%. Gold price climbed 2.1%. The SPGC commodity index was down 1.2%. The bond markets were sold off too. Barclays US Treasury index declined by 0.5%, and US high yield bonds was down 0.8%.
• Bernanke Told Lawmakers the Fed Could Winding Down Its Bond Purchases
Fed chairman Ben Bernanke told lawmakers that the U.S. job market remains weak and that it is too early for the Federal Reserve to slow its extraordinary bond purchase programs. Reducing the Fed’s efforts to keep borrowing rates low would “carry a substantial risk of slowing or ending the economic recovery,” Bernanke said in testimony to the Joint Economic Committee of House and Senate. When pressed by lawmakers, Bernanke said the pace of bond purchases could be reduced over the next few meetings, if the job market shows “real and sustainable progress.” Most of Bernanke’s testimony focused on the many risks facing the economy, along with the benefits gained so far from the Fed’s stimulus. His comments suggest the Fed is not ready to taper the bond purchases in the near future.
• US Durable Goods Orders Rose 3.3% in April
Orders for long-lasting manufactured goods in the US rebounded in April, buoyed by greater demand for aircraft and stronger business investment. The gains suggest economic growth may be holding steady this spring. Orders for durable goods, items expected to last at least three years, rose 3.3% in April. A measure of business investment plans increased 1.2%, and the government revised the March figure to show a 0.9% gain, instead of a slight decrease. Companies ordered more machinery and electronic products, typically signs of confidence. More spending by businesses could ease fears that manufacturing could drag on the economy later this year.
• US Existing Home Sales Hit Three-Year High
Prices surged as sales of existing homes in the US rose in April to the highest level in nearly three and a half years, offering the economy a buffer from the stiff headwinds of belt-tightening from Washington. Existing-home sales had advanced 0.6% to an annual rate of 4.97 million units, the highest level since November 2009. Resale of homes was 9.7% higher than in the same period last year.
• Bank of Japan Stood Pat on Monetary Policy
The Bank of Japan stood pat on monetary policy amid market anxiety over volatility in bond markets, which has threatened to undermine the country’s battle to end deflation and stimulate growth in the Japanese economy. Haruhiko Kuroda, the central bank governor, said Bank of Japan would continue to make large bond purchases. The bank’s board stuck to its strategy of expanding the monetary base at an annual pace of 60 trillion yen to 70 trillion yen, or $586 billion to $684 billion, through purchases of government bonds, commercial debt and other assets.
Top Stories to Watch This Week
• US Housing Market
S&P/Case-Shiller Home Prices will be reported for March on Tuesday.
• Bank of Canada Interest Rate Decision
Bank of Canada will announce its interest rate decision on Wednesday.
• Euro Zone Inflation Rate
Euro Zone Consumer Price Index will be reported on Thursday.