Julex Market Weekly 07-07-2013 | US Stocks Rallied as Bond Rout Continued

Top Stories Last Week

• US Stocks Rallied as Bond Rout Continued

The US stocks rallied as employers added 195K jobs in June, better than expected, signaling the US economic growth is gaining momentum. In the week, S&P index rose 1.6%, and MSCI EAFE index climbed 0.9%. However, the MSCI Emerging Market Index tumbled by 2.8% amid the turmoil in Egypt, Brazil and Turkey. Gold price declined again by 0.9%. The SPGC commodity index jumped by 3.5% as oil prices rose. The bond markets sold off as the concern in Fed’s tapering intensified. Barclays US Treasury index dropped by 1.8%, and US high yield bonds was down by 0.6%.

• US Economy Added 195K Jobs and Unemployment Rate Remained Unchanged

US Employers added a better-than-expected 195K jobs in June, as the labor market advanced despite huge federal spending cuts and tax increases, and a euro zone recession. The unemployment rate was unchanged at 7.6%. In addition, job gains for April and May were revised up by a total 70K. The job growth was broad-based, with leisure and hospitality, professional and business services, retail, health care and finance all showing solid gains. The improvement in June increases the likelihood that the Federal Reserve will begin scaling back its stimulus at its September meeting. The Fed rattled stock and bond markets recently by saying it could rein in its monthly bond-buying later this year and end it by mid-2014, assuming the unemployment rate falls to 7% by then.

• ECB May Keep Its Interest Rates Low “For an Extended Period”

European Central Bank President Mario Draghi underlined the bank’s determination to stick with stimulus for the struggling euro zone, saying the bank will keep its benchmark interest rate the same or lower “for an extended period of time.” After an “extensive discussion” of a potential rate cut, the bank left the refinancing rate for the 17 European Union countries that use the euro unchanged at 0.5%. Instead, in a marked departure of its usual stance of never pre-committing itself to targets, the bank offered an attempt at what is called “forward guidance”. Also on Thursday after its monthly policy setting meeting, the Bank of England kept its stimulus measures unchanged.

• China June Official PMI Slipped to 50.1, Added to Growth Concerns

Growth in China’s manufacturing sector slowed to multi-month lows in June on faltering new orders. The official PMI slipped to 50.1 in June from May’s 50.8, just a whisker above the 50-point level that indicates growth. The last time the reading fell below 50 was in September. Slowing growth in China’s factory sector, as well as tighter monetary conditions in coming months after a squeeze in the interbank market in the last two weeks, could further hobble the Chinese economy this year.

• Egypt is in a Political Turmoil

The Egyptian armed forces ousted Egypt’s first democratically elected president Wednesday after just a year in power, installing a temporary civilian government, suspending the constitution and calling for new elections. Islamist President Mohammed Morsi denounced it as a “full coup” by the military. The newly-appointed interim president Adly Mansour is struggling to form a new government following an outburst of violence between supporters and opponents of ousted leader that killed at least 75 people across the country and deepened the battle lines in the divided nation.

Top Stories to Watch This Week

• Bank of Japan Monetary Policy

The Bank of Japan is widely expected to hold interest rates steady.

• Chinese Inflation

Economists expect the Chinese CPI to increase by 2.5% YOY.

• European Industrial Production

The industrial productions in euro zone are expected to decline 0.2% in May.