JULEX WEEKLY REVIEW 10-07-2012: Markets Rose on Better than Expected Economic News

Top Stories Last Week

  • Markets Rose on Better than Expected Economic News

Global equity markets rose in the first week of October as economic news released in the US were better than economists’ expectation. The Standard & Poor’s 500 Index gained 1.5%, MSCI EAFE index rallied by 2.2% and MSCI emerging market index rose by 1.3%.  Gold increased 0.4% while GSCI commodity index dropped 0.8% as oil price declined. On the other hand, as investors were in the mode of taking more risks, Barclays US Treasury index lost 0.6%.

  • ECB and BOJ were On Hold, RBA Cut Interest Rates by 25 Basis Points

European Central Bank (ECB) announced that it would keep interest rates unchanged at 0.75% even though the European economic conditions clearly prescribe looser policy. In the after-meeting news conference, ECB President Mario Draghi said “the euro is irreversible.”  He also reiterated the ECB is ready to buy the bonds of troubled euro-zone economies once they request it.

The Bank of Japan (BOJ) voted unanimously to keep rates at between zero and 0.1% and left an 80 trillion yen ($1.02 trillion) asset purchase program in place in order to boost the flagging economy.

The Reserve Bank of Australia (RBA) announced it had cut the cash rate by 25 basis points to 3.25% at its October board meeting, in response to a worsening global economic outlook.

  • Global Manufacturing Activities were Improving, but Still Challenging

China’s official factory purchasing managers’ index rose to 49.8 in September from 49.2 in August, remaining in contraction territory. August marked the lowest level since November 2011, as the Chinese economy struggled against cooling exports, slowing factory output and fixed asset investment.

The composite PMI survey for the Eurozone was revised up a little from 45.9 to 46.1, after upward revisions to both the services and manufacturing surveys. This is still deep in contraction territory.

U.S. manufacturing activity grew in September for the first time in four months. The Institute of Supply Management’s monthly reading was at 51.5, which beat the economists’ consensus. That ended a three-month slump followed a string of almost three years of manufacturing growth.

  • US Added 114K Jobs and Unemployment Rate Fell to 7.8%

The unemployment rate in the U.S. fell to 7.8%, its lowest level since President Barack Obama took office as the economy continued to add jobs. In a separate survey, US payrolls increased by a seasonally adjusted 114K jobs last month, slightly lower than forecast. The market reaction was muted.

Top Stories to Watch This Week

  • Alcoa will Kick Off 3Q Earning Season

Alcoa will kick off 3Q earning season on Wednesday.  JP Morgan and Wells Fargo will follow on Friday.

  • US Consumer Sentiment Index

The Reuters/Michigan Consumer Sentiment Index will be released on Friday. It is expected that the recent strong performance of equity and housing markets may boost consumer confidence.

  • Will Spain Ask for a Bailout?

The Spanish government still insisted that it does not need a bailout. The delay creates uncertainties in the market and the resolutions of European crisis.

  • Greece Continues Talks to Get Next Loan Tranche

Greece will continue talks with international lenders on new austerity measures for the debt-ridden country to clinch its next loan tranche.