JULEX WEEKLY REVIEW 12-09-2012 | US Stocks Were Flat while EM Stocks Rallied

Top Stories Last Week

  • US Stocks Were Flat while EM Stocks Rallied

U.S. stocks were essentially flat for the week, as unremarkable economic data combined with worries about the fiscal cliff to sap investor enthusiasm. Early in the week, news on Chinese Manufacturing rebound drove the emerging market stocks higher.  Standard & Poor’s 500 Index rose 0.2%, MSCI EAFE index was up 0.8% and MSCI emerging market index rallied 2.4%.  Gold continued its decline, down by 0.5% while the GSCI commodity index lost 2.2% as oil prices dropped.  In the bond markets, Barclays US Treasury index gained 0.1% while US high yield bond gained 0.7%.

  • Fiscal Cliff Negotiation Remained Stalled

The US is about three weeks away from potentially dipping into another recession when deep spending cuts are scheduled to mix with a tax hike in 2013.  President Obama and Republican leaders remain far apart on how to work out a solution. The President continues to call for ending tax breaks for high-income earners, but Republicans want to find revenue through closing tax loopholes.

  • US Manufacturing Activities Unexpectedly Contracted

Manufacturing unexpectedly contracted in November as factory managers grew more concerned about the potential economic damage stemming from the so-called fiscal cliff.

The Institute for Supply Management’s manufacturing index fell to 49.5, the lowest since July 2009, from 51.7 in October.  Manufacturing sector underperformed on weaker overseas demand, and less investment in equipment, however, construction gains, reflecting a recovery in housing, were helping pick up some of the slack.

  • US Added 146K Jobs in November and Unemployment Rate Dropped to 7.7%

Nonfarm payrolls increased by 146K jobs last month, defying economists’ expectations of a sharp pull back related to superstorm Sandy. However, job gains for October were revised down to show 49,000 fewer jobs than earlier reported. The unemployment rate fell to 7.7 %, the lowest since December 2008. But the drop was a result of people giving up the search for work.  The civilian labor force participation rate declined by 0.2% to 63.6%.

  • Bank of England and European Central Bank Meetings

European Central Bank kept interest rates unchanged. The ECB president Mario Draghi expressed satisfaction with progress toward resolution of the euro zone crisis, applauding “amazing” efforts by euro zone countries to reduce government spending. However, ECB was pessimistic on the immediate outlook for economic growth in Euro zone and kept the door open for rate cuts.

The Bank of England also kept its interest rate at a record low of 0.5% and left its bond-purchasing program at £375 billion after the British economy emerged from a double-dip recession. The economy grew 1% in the third quarter, its strongest quarterly growth since the global financial crisis started in 2008. But growth was helped by Olympics ticket sales, and some economists said the outlook was gloomy.

  • Apple Sell-off Continued

Apple Inc. was in the midst of another sell-off,  its market value clipped by 7% this week alone and more than 20% over the last 10 weeks. Apple is facing increasing competition from Google, Microsoft and other smartphone makers such as Samsung.

Top Stories to Watch This Week                

  • Fiscal Cliff Negotiation Continues

Republicans and Democrats will continue to negotiate to avert fiscal cliff.

  • FMOC Meeting

Fed will meet to decide on monetary policies. It is expected to keep current policy intact.

  • US Retail Sales

Retail Sales in the US rose by 0.4% in November according to median economists’ forecast.

  • US and Euro Zone CPI Inflation

The CPI inflation rates in the US and Euro zone are expected to stay tame around 2.2% YOY.