Top Stories Last Week
• Emerging Markets Tumbled
Expectations of a slower pace of growth across most emerging markets have helped sap investor confidence in these economies, and added to concerns that the asset class will be dragged down when the Federal Reserve begins to wind down its economic stimulus program. Emerging market equity tumbled, though US markets continued moving higher on stronger economic news. In the week, S&P index rose 0.6%, but MSCI EAFE index dropped 0.5%. The MSCI Emerging Market Index tumbled by 3.1%. Gold dropped 2.1%, and the SPGC commodity index declined 1.1%. The bond markets declined as well on stronger job reports. Barclays US Treasury index was down by 0.8%, while US high yield bonds was up by 0.1%.
• US Added 204K Jobs and Unemployment Rate Rose to 7.3%
US Employers added 204k jobs in October, well above the 120k economists expected. The unemployment rate was up slightly to 7.3% from 7.2% in September. The labor force participation rate dropped to 62.8% from 63.2%, the lowest rate since March 1978. The number of people reporting temporary unemployment grew by 448k, a figure which includes furloughed federal workers. Labor Department explains, “Federal employees on furlough during the partial government shutdown were still considered employed in the payroll survey because they worked or received pay for the pay period that included the 12th of the month.”
• ECB Lowered Interest Rate to 0.25%
The European Central Bank cut interest rates to a record low and said it could take them lower still to prevent the euro zone’s recovery from stalling as inflation tumbles. The move surprised financial markets. The euro fell sharply in response while European shares rose. The ECB re-iterated its supports on euro zone banks, saying it would prime banks with as much liquidity as required until mid-2015. The central bank had faced intense pressure to act after a shock slump in euro zone inflation to 0.7% in October, far below the ECB target of just under 2%. The ECB lowered its main refinancing rate by 25 basis points to 0.25 %. It held the rate it pays on bank deposits at zero and cut its emergency borrowing rate to 0.75% from 1.00%.
• US Economy Grew at a 2.8% Annualized Rate in the Third Quarter
The U.S. economy continued to plod along in the third quarter as businesses cut investments and consumers moderated their spending. The Commerce Department estimated that the U.S. gross domestic product grew at a 2.8% annualized rate in the third quarter. That marked an improvement from the second-quarter’s 2.5% rate of expansion, and was the highest in a year. But much of the growth came from a one-time inventory gain among businesses, which is likely to reverse if demand isn’t strong enough for companies to draw down those stocks substantially. Stripping out those inventory gains, the underlying Q3 growth rate was 2%, which is below the comparable 2.1% in the second quarter.
Top Stories to Watch This Week
• Euro Zone GDP
Euro Zone economic growth is expected to be 0.2% in the third quarter.
• Euro Zone Inflation Rate
The CPI inflation in the Euro zone is likely to be 0.7% YOY, which is much lower than the 2% target of ECB.
• US Industrial Production
US industrial production is likely to rise 0.2% in October.