Top Stories Last Week
- US Stocks Declined Slightly while International Stocks Gained
U.S. stocks declined slightly, as worries about the fiscal cliff continued to sap investor enthusiasm. Fed’s QE4 could not boost the US stocks. However, the stocks in both developed and emerging market stocks moved higher as the economic news there became more positive. Standard & Poor’s 500 Index lost 0.2%, while MSCI EAFE index was up 1.1% and MSCI emerging market index rallied 1.6%. Gold continued its decline, down by 0.6% while the GSCI commodity index gained 0.1%. In the bond markets, Barclays US Treasury index lost 0.5% while US high yield bond gained 0.1%.
- Fiscal Cliff Negotiation Slowly Progressed
House speaker Boehner and President Obama continued talks on the so-called fiscal cliff. Republicans have agreed to increase taxes for the wealthy to raise revenue in exchange for spending cuts on entitlement. This made the two sides closer to a deal.
- Fed Set Jobless and Inflation Targets to Start QE4 with More Bond Purchases
The Federal Reserve set new targets on the level of unemployment and inflation that must be in place before it would contemplate higher interest rates. Meanwhile, the Fed announced a new $45 billion bond-buying program, replacing operation twist to keep the recovery going in the languishing jobs market. Fed Chairman Ben Bernanke said for the first time, the Fed would hold rates close to zero while the unemployment rate is above 6.5% as long as inflation is not projected to rise above 2.5%.
- US Retail Sales Grew by 0.3% in November
US consumers spent more online in November to start the holiday season and began to replace cars and rebuild in the Northeast after Superstorm Sandy. U.S. retail sales rose 0.3%. The figures were stronger after excluding lower gas prices. When factoring a large drop in gas station sales, retail sales rose a solid 0.8%. Still, many economists worry that consumers may also be growing more cautious because of looming tax increases set to take effect in January if there is no resolution on so-called fiscal cliff.
- US Consumer Price Index Dropped 0.3% in November
US Consumer Price Index dropped 0.3% in November as a sharp decline in gasoline prices offset in other areas. It was also the largest drop since May and followed a 0.1% gain in October. This should allow the Federal Reserve to stay on its ultra-loose monetary policy path.
Top Stories to Watch This Week
- Fiscal Cliff Negotiation Continues
Republicans and Democrats will continue to negotiate to avert fiscal cliff, though some progress was made last week.
- Housing data
US housing index and existing home sales will continue to show housing recovery in the US, according to economists.
- Japan’s General Election
Japanese voters handed a landslide victory Sunday to the main opposition party, the Liberal Democratic Party (LDP). Its hawkish leader Shinzo Abe, set for a second time as prime minister, promises to revive Japan’s stagnant economy.
- Bank of Japan meeting
The Bank of Japan will meet on monetary policy on Wednesday.