Week in Review: Markets move higher despite rippling Middle East tensions

Global economic news

U.S. inflation still tameWholesale prices in the United States rose a seasonally adjusted 0.8% from December to January, the U.S. Department of Labor said. However, core inflation, stripping out food and energy prices, was up just 0.5%. Year over year, the core index of producer prices increased 1.6%. U.S. consumer prices rose more modestly in January, by 0.4%, and just 0.2% excluding food and energy. For the year, consumer prices rose 1.6% before seasonal adjustments, and core inflation was 1.0%, below the U.S. Federal Reserve Board’s 2.0% target.

U.S. mortgage delinquencies dropFewer U.S. households were behind on mortgage payments at year-end than at any time in the past two years. Nearly 12.9% of homes — 6 million households —  were 30 days or more past due or in foreclosure at the end of December, according to the Mortgage Bankers Association quarterly survey. This figure represents a decrease of 14% from one year ago but is higher than the 11% delinquency rate of two years ago.

Leading U.S. regional manufacturing index has best month in seven yearsManufacturers in the mid-Atlantic area had their strongest monthly showing since January 2004, according to the Federal Reserve Bank of Philadelphia’sgeneral business activity index, which rose to 35.9 in February from 19.3 in January. The report, which is seen as an economic bellwether, is in keeping with other regional surveys of manufacturing activity.

U.S. deficit projected to reach $1.65 trillionThe White House projects the U.S. federal deficit will reach a record $1.65 trillion this fiscal year. However, the administration also forecasts that the deficit will decline to $1.1 trillion in fiscal year 2012 and shrink to $627 billion by 2017, or to 3% from 10.8% this year.

German producer prices rise sharplyProducer prices in Germany rose 1.2% in January and 5.7% from a year earlier, the Federal Statistics Office reported. Energy prices rose 2.3% for the month and 9.3% for the year.

OECD indicators point to global growthMost developed economies will continue to grow in the coming months, predicts the OECD. Its leading indicator of economic activity in the 33 member countries rose to 102.8 in December from 102.5 in November. Growth was projected to be highest in Germany, Japan, and the United States, with Italy and China heading for a decline.

U.S. jobless claims riseAfter reaching a two-year low in initial claims for unemployment benefits the previous week, the number of American workers filing new claims rose last week, by 25,000 to 410,000, the Labor Department reported. The four-week average of new claims rose to 417,750.

China overtakes Japan as number-two global economyChina officially overtook Japan as the world’s second-largest economy in 2010, according to figures from both governments. China’s gross domestic product reached $5.88 trillion last year, an annual growth rate of 9.8%, surpassing the showing of Japan’s $5.47-trillion economy. Both economies are far behind the United States’ 2010 GDP of $14.66 trillion.

Chinese trade surplus shrinks in JanuaryChina’s trade surplus fell to $6.45 billion in January from $13.1 billion in December, according to customs data. Although China’s exports rose 38% from a year earlier, imports were up 51%, reflecting robust domestic demand within the world’s most populous country and supporting a 10% annual economic growth rate.

Global corporate news

European financial firms in solid standingReports from European large financial firms were encouraging. London-based Barclays’ annual earnings were 36% higher than a year earlier. Dutch financial services company ING returned to a profit in the fourth quarter, on strong performance by its banking business, which enjoyed higher interest rate margins and lower loan losses than a year earlier. French lenderSociété Générale reported a fourth-quarter net profit almost four times higher than a year earlier on strength in retail banking, a recovery by its corporate investment bank, and smaller provisions against bad loans.

Megacorporations post large profits, reflecting recoverySwiss food-making giant Nestlé tripled its 2010 net profit from a year earlier, helped by the sale of its eye-care unit and a growth in sales in emerging markets and its nutrition division.

Swiss electrical engineering firm ABB posted a 30% growth in fourth-quarter net profit. Sales rose 5% and orders, reflecting future revenue growth, increased 17%.

Anglo-Australian mining giant BHP Billiton netted a 72% growth in profits in the first half of its fiscal year, benefiting from strong demand in China and other rapidly growing regions of the world. BHP is a leading producer of coking coal that is used in steelmaking, copper, iron ore, nickel, and silver.

Anglo American, another massive mining company, reported that its annual profit nearly tripled, as demand and prices increased for its commodities — platinum, copper, nickel, coal, and iron ore.

Growth propels John Deere into higher gearDeere & Company more than doubled its first-quarter profit from a year ago on strong sales of farm and construction machinery. The world’s largest farm equipment manufacturer beat quarterly analyst expectations and raised its sales and profit forecasts for the fiscal year.

Sanofi to buy GenzymeFrance’s Sanofi-Aventis has agreed to purchase Genzyme for more than $20 billion. The acquisition gives Sanofi a dedicated U.S. research team with better ties to other U.S. researchers in the biotechnology industry and academic world.

The week ahead

• German Ifo business climate survey released Monday, February 21
• Earnings for Home Depot, Wal-Mart and Hewlett-Packard posted Tuesday, February 22
• U.S. consumer confidence figures released Tuesday, February 22
• Chinese producer and import price index released Wednesday, February 23
• U.S. jobless claims figures released Thursday, February 24
• Germany GDP data released Thursday, February 24

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual, or quarterly report. Full holdings are also available on the individual Fund Profile tab in the Products and Performance section of mfs.com.

Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News;Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

--see disclaimer below--

Market Week: February 14, 2011

The Markets Heartened by generally positive earnings reports and some relief over Egypt's political climate, investors once again sent domestic equities up for the week. The small-cap Russell 2000 rallied strongly, while the Nasdaq was less than 2% away from its 2007 high of 2861. The Dow and S&P 500 continued to remain above 12,000 and 1,300 respectively.

Market/Index	2010 Close	Prior Week	As of 2/11	Week Change	YTD Change
DJIA	11577.51	12092.15	12273.26	1.50%	6.01%
NASDAQ	2652.87	2769.30	2809.44	1.45%	5.90%
S&P 500	1257.64	1310.87	1329.15	1.39%	5.69%
Russell 2000	783.65	800.11	822.11	2.75%	4.91%
Global Dow	2087.44	2188.02	2198.81	.49%	5.34%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.30%	3.68%	3.64%	-4 bps	34 bps

Last Week's Headlines

• Despite a 1.8% increase in exports, the U.S. trade deficit widened to $40.6 billion in December because imports grew by 2.6%. The Bureau of Economic Analysis said part of the reason was that the U.S. imported more crude oil at higher prices.
• The Treasury Department recommended that Fannie Mae and Freddie Mac gradually be wound down and eased out of their role in helping to finance the nation's housing market, to be replaced by private lenders. The report's recommendations for immediate steps included reducing the two agencies' portfolios, restricting purchases of mortgages that exceed $625,000 or involve a minimal down payment, raising fees for mortgage securitization guarantees and FHA mortgage insurance, and setting national standards for mortgage servicing companies. Of the three alternative proposals for long-term reform, which would require Congressional action and take several years to implement, the most dramatic would narrowly restrict the agencies to helping to support lending to narrowly targeted populations. The report said that option would reduce taxpayer liability for troubled loans but dramatically increase the cost of getting a mortgage for most people. The proposal most like the current system involves more regulation of the agencies' activities while allowing the government to reinsure a broad range of mortgages.
• The Federal Reserve said consumer borrowing increased at an annual rate of 3% in December. However, revolving credit such as credit card debt declined 2.75%, while nonrevolving debt, such as mortgages, was up 5.5%.
• Wholesale sales were up 0.4% in December, according to the Census Bureau, putting them 10.5% higher than a year ago. Wholesale inventories rose 1% for the month.
• Oil prices continued to drop as the political situation in Egypt appeared near a peaceful resolution.

Eye on the Week Ahead

Retail sales data will show just how much bad weather has affected shoppers, while inflation measures will be watched for any signs of an uptick in prices.

Key dates and data releases: Retail sales, business inventories (2/15); wholesale inflation, housing starts, industrial production, Federal Reserve minutes (2/16); consumer inflation, leading economic indicators (2/17).


Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return.


The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.


--see disclaimer below--

Week in Review: Investors keep close eye on Egypt as Mubarak steps down

Global economic news

China raises rates againPolicymakers in emerging market countries continued to raise interest rates this week to fight accelerating inflation. China raised its lending and deposit rates for a third time in four months. The Bank of Korea, however, surprised markets and opted to keep its key lending rate on hold at 2.75%. Last week, the Bank of Indonesia increased borrowing costs for the first time in more than two years. Speculation that policymakers will take further steps to curb inflation has weighed on stocks in the region.


BOE keep stimulus in placeThe Bank of England maintained its emergency stimulus measures and held its benchmark interest rate unchanged at a record low 0.5%.



U.S. jobless claims fallThe number of U.S. workers filing new claims for unemployment benefits fell more than expected last week. Claims dropped 36,000 to 383,000 in the week ended February 5. It was the lowest reading since July 2008 and points to the continued improvement in the job market as the economy picks up speed.



U.S. consumer confidence picks upThe Thomson Reuters/University of Michigan preliminary index of consumer confidence for the month showed confidence among U.S. investors increased to the highest level in eight months.



U.S. trade gap widensThe U.S. trade gap widened 5.9% in December, and the full-year gap gained the most in 10 years. Imports rose 2.6%, and exports grew 1.8%, with both categories hitting levels not seen in over two years.



U.K. manufacturing unexpectedly declined in DecemberManufacturing activity fell as economic activity was hampered by the coldest weather seen in a century. Factory output declined for the first time since April, falling 0.1% from November.

Global corporate news

Takeover deals dominate corporate news The Deutsche Börse announced this week that it is in talks to buy the New York Stock Exchange in a deal valued at almost $10 billion. Meanwhile, the London Stock Exchange made a $3.1 billion bid for TMX Group. The week began with news that AOL would buy the Huffington Post for $315 million. In a merger that would step up consolidation in the offshore oil drilling industry, Ensco agreed to buy Pride International for $7.3 billion. Looking to gain a stronger foothold in the diagnostics industry, Danaher said it would buy Beckman Coulter for $5.87 billion. Kindred Healthcare disclosed it would acquire RehabCare for about $1.3 million in the latest health care deal driven by cost cutting. Overall, analysts say the trend reflects increased corporate confidence and economic recovery.



Nokia announced a partnership with MicrosoftIn what is being billed as a major strategy shift for the handset maker, Nokia said it will adopt Windows Phone as its main smartphone platform. The move is part of Nokia's broad strategic partnership with Microsoft.



Cisco disappointsTechnology bellwether Cisco Systems disappointed investors this week as it announced its profits fell 18%; the company also reported its fourth consecutive quarterly decline in margins. Both were viewed as sign of growing competitive pressures in Cisco's core network switching business.


Credit Suisse hit by tougher regulations, capital requirementsCredit Suisse Group reported that its fourth-quarter net income rose a less-than-expected 6%. The company, which is Switzerland's second-largest bank, cut its 2010 dividend as well as future profit targets, saying that tougher regulations and capital requirements will likely cut into its bottom line in years to come.


Other profit news mixedPepsiCo reported a 5% drop in its fourth-quarter profit and cut its earnings outlook, saying it faces headwinds from high unemployment, cost inflation, and a potentially tough pricing environment. Allstate, the largest publicly traded home and auto insurer in the United States said fourth-quarter profit fell 43% because of an increase in disaster claims. Sprint Nextel's fourth-quarter loss narrowed slightly, and Whole Foods lifted its 2011 forecasts for profits and sales. Kraft Foods' net income fell 24% amid higher costs for meat, packaging and other inputs.

The week ahead

• The Bank of Japan begins its two-day meeting on Monday, February 14

To be released

• The ZEW survey on the eurozone, on Tuesday, February 15
• Eurozone GDP data, on Tuesday, February 16
• U.S. Producer Price Index, on Wednesday, February 16
• U.S. Consumer Price Index, on Thursday, February 17
• U.S. jobless claims on Thursday, February 17

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your financial advisor, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon, and tolerance for risk.

Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual, or quarterly report. Full holdings are also available on the individual Fund Profile tab in the Products and Performance section of mfs.com.


Past performance is no guarantee of future results.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

--see disclaimer below--