Julex Market Weekly 08-03-2013 | US Markets Rallied to New Records in a News-Heavy Week

Top Stories Last Week

• US Markets Rallied to New Records in a News-Heavy Week

US stock markets rallied to new records in a news-heavy week. Fed remained dovish and labor markets continued to show slow improvements. In the week, S&P index rose 1.0%, and MSCI EAFE index climbed 1.4%. However, the MSCI Emerging Market Index was down 0.6%. Gold dropped by 1.9% while the SPGC commodity index gained 0.7% as oil prices rose. The bond markets declined again. Barclays US Treasury index was down by 0.2%, and US high yield bonds dropped 0.1%.

• Fed and ECB Kept Monetary Policies Unchanged and Remained Dovish

Federal Reserve said the U.S. economy still needed support and offered no hint that it is planning to reduce its bond-buying stimulus at its next meeting in September. It also slightly downgraded its view of the recovery. As expected, the European Central Bank left the benchmark refinancing rate unchanged at 0.5% and the deposit rate unchanged at 0%. At the press conference, Draghi said that euro area growth risks remain on the downside, while euro area inflation risks remain broadly balanced.

• US GDP Grew at 1.7% , Faster than Expected

The US economy grew at an annualized pace of 1.7% in the second quarter of 2013. Economists had expected a growth rate of around 1.1%, with some pessimistic forecasts as low as 0.5%, but robust consumption and investment offset the drag from public spending cuts and a slowing global economy. The figures suggest that the world’s largest economy has some momentum and are likely to give the Fed greater confidence to “taper” its asset purchases from $85bn a month later this year.

• US Added 162K Jobs in July and Unemployment Rate Dropped to 7.4 %

The US unemployment rate dipped from 7.6% to 7.4%, with the country adding about 162K jobs last month. It’s the lowest unemployment rate in four years, dating back to December 2008. A year ago, the jobless rate was around 8.2 percent. “Over the prior 12-month period, job gains averaged 189K per month. In July, employment rose in retail trade, food services, financial activities, and wholesale trade,” the BLS said in its monthly statement. While the new numbers suggest a recovering economy, the lower unemployment rate, the job markets are far from healthy.

• US Manufacturing Sector Accelerated in July

The pace of growth in the manufacturing sector accelerated in July to the highest level in two years as new orders surged, supporting the view the economy will pick up in the second half of the year. The Institute for Supply Management (ISM) said its index of factory activity rose to 55.4 from 50.9 in June, topping expectations for 52. It was the highest since June 2011. New orders also racked up their best level in more than two years, jumping to 58.3 from 51.9. Employment gained to 54.4 from 48.7.

• China’s Manufacturing Activities Showed Mixed Results

The official NBS Purchasing Managers’ Index (PMI), which surveys bigger firms, rose to 50.3 in July from 50.1 in June. However, HSBC’s PMI, which tracks smaller firms, fell to 47.7 from 48.2 in June. China’s manufacturing and export sectors have been key drivers of its economic growth. However, demand for China’s exports has slowed recently, especially from key markets such as the US and Europe as they grapple with their own economic problems. Meanwhile, policymakers have found it tough to boost domestic consumption enough to offset the decline in foreign sales. To make matters more difficult, labor costs in China have been rising, resulting in some companies looking to countries such as Bangladesh and Cambodia for low-cost manufacturing.

Top Stories to Watch This Week

• Bank of Japan and Reserve Bank of Australia Meetings

Bank of Japan and Reserve Bank of Australia both are expected keep interest rates unchanged. Investors will look for hints on future monetary policies direction from the statements.

• Chinese Economic Data

China will report retail sales, CPI, exports and industrial productions data this week. Economists expect slight improvements.

• More Earnings Reports

Among companies due to report earnings this week, CVS Caremark posts second-quarter results on Tuesday. McDonald’s Corp is to report July restaurant sales on Thursday. Also on Thursday, Dean Foods Co., the top U.S. dairy company, posts quarterly results.