Top Stories Last Week
• US Stocks Moved Close to All-Time High
U.S. stocks ended a week higher, lifted close to all-time highs as investors digested weak economic data from China and the euro zone, improving US economic news and the federal spending cuts known as the sequester. S&P 500 Index rose slightly by 0.1%, while MSCI EAFE index lost 0.7% and MSCI Emerging Market Index was down by 0.3%. Gold continued declining by another 0.3% after a 5-month drop. The SPGC commodity index lost 2.3% as oil and gold declined. The bond markets rose for the week, Barclays US Treasury index gained 0.9% while US high yield bonds gained 0.5% as well.
• Sequester Spending Cuts Took Effect on March 2
President Obama and congressional leaders failed to reach an agreement to avert $85 billion automatic spending cuts that neither had wanted to see. Officials have said the spending reductions immediately take effect on March 2, but that the impact from reduced government services would be felt gradually in the weeks ahead. Some Federal agencies such as Homeland Security, the Pentagon, Internal Revenue Service and the Department of Education, have prepared to notify employees that they will have to take one unpaid day off per week. The staffing trims could slow many government services, including airport screenings, air traffic control, and law enforcement investigations and prosecutions. Spending on education programs and health services for low-income families will also be cut.
• Bernanke Defended the Ultra-loose Monetary Policy Before Congress
Federal Reserve Chairman Ben Bernanke strongly defended the U.S. central bank’s monetary policy before Congress, easing financial market worries over a possible early withdrawal from quantitative easing. Bernanke said Fed policymakers are aware of potential risks from their extraordinary support for the economy, including the possibility unwanted inflation or asset bubbles. But, he iterated the risks did not seem material at the moment, adding the central bank has all the tools to retreat from its monetary support in a timely fashion.
• US Manufacturing Activities Continued to Expand
The U.S. manufacturing sector expanded a bit faster in February than expected. The ISM’s manufacturing purchasing managers’ index increased to 54.2 from 53.1 in January. A reading above 50 indicates expanding activity.
• Chinese Manufacturing was Disappointed, but is Still Expanding
China’s manufacturing growth cooled in February to multi-month lows after domestic demand dropped and foreign sales slowed, two surveys showed on Friday, underlining the country’s patchy economic recovery. China’s official purchasing managers’ index (PMI) came in at 50.1, slightly below a 50.2 consensus and the 50.4 posted in January. A private survey showed the final HSBC PMI fell to 50.4 from January’s two-year high of 52.3.
• Italian Election was Inconclusive
Italy’s political parties searched for a way to form a government after an inconclusive election gave none of them a parliamentary majority and threatened prolonged instability and a renewal of the European financial crisis. A long recession and growing dissatisfaction with mainstream parties and tax-raising austerity fed a bitter public mood. Projections showed that the center-left Bersani’s Democratic Party will have 121 seats in the Senate, against 117 for the center-right alliance of Berlusconi’s PDL and the regionalist Northern League. Grillo’s Five Star Movement would take 54.
Top Stories to Watch This Week
• Will ECB cut rates? More BOE easing?
European Central Bank and Bank of England will meet this week. Given the poor economic performance in Europe, many economists expect rate cuts or more monetary easing.
• US Job Market Improving?
US economy is expected to add 160K jobs in February and unemployment rate remains at 7.9%.
• US ISM Service Sector Index
US service sector will remain strong. The ISM service sector reading is expected to be 55.
• Italian Election: Any Resolution?
Investors will watch the development of Italian election. The result will have impact on Italian’s ability to continue structured reforms and commitment to austerity measures.
• Reserve Bank of Australia, Bank of Japan and Bank of Canada Meetings
RBA, BOJ and BOC will keep interest rates unchanged, according to economists’ survey.