Week in Review: Commodities plunge as investors question global recovery

Global economic news


U.S. economic reports point to recovery woesEconomic news in the United States this week continued to underline the struggles the U.S. economy faces as it recovers. U.S. companies added more jobs than expected in April, even as the unemployment rate rose for the first time in five months. The private sector posted the strongest employment gains in five years as nonfarm payrolls rose by 244,000. The unemployment rate rose to 9% from 8.8% in March. That monthly jobs report came one day after news that applications for jobless benefits unexpectedly jumped more than expected last week. That increase was partially the result of auto shutdowns caused by the disaster in Japan. Other reports also pointed to the pressures on recovery. U.S. consumer confidence fell to a five-week low as the highest gas prices in five years negatively affected Americans' attitudes toward spending.


Manufacturing recovery losing momentumThe Institute for Supply Management's gauge of factory activity edged lower in April to 60.4 from 61.2; any reading above 50 indicates expansion. The report showed production growth and a rising backlog of orders and suggested that supply chain woes resulting from problems in Japan are affecting U.S. manufacturers. Also in April, manufacturing in the United Kingdom fell unexpectedly to a seven-month low amid declining consumer confidence and falling construction orders. In Russia, manufacturing suffered its largest monthly drop since December 2008 after export orders fell and companies scaled back investment.


Inflation concerns mount globallyAround the world, inflation concerns were front and center. The Organization for Economic Cooperation and Development reported that consumer prices in developed economies rose in March at the fastest pace since October 2008. The price increases were driven by faster energy and food inflation. Prices in the OECD's 34 member countries rose by 2.7% for the 12 months ended in March. The core inflation rate, which excludes volatile food and energy, rose to 1.4% in March from 1.3% in February.


Inflation concerns have prompted central banks to tighten monetary policy. The Reserve Bank of India raised rates for the ninth time since March 2010. Central banks in the Philippines, Malaysia, and Vietnam also lifted borrowing  costs, and China's central bank, in its first-quarter monetary policy report, affirmed that controlling inflation is its top priority, even after its manufacturing survey slid in April from March, an indication that growth may slow.


ECB, BOE, and Royal Bank of Australia leave rates unchangedThe European Central Bank left rates unchanged as it tried to balance the challenges of its weaker members with its inflation concerns. In the United Kingdom, the Bank of England kept its benchmark rate at a record low amid signs that its recovery is faltering. The Reserve Bank of Australia also left its benchmark interest rate unchanged for a fifth-straight meeting as a record-low Australian dollar helps contain inflation pressures.


U.S. banks more willing to lendThe U.S. Federal Reserve Board's quarterly senior loan officer survey released Monday showed that the willingness of banks to lend money to consumers rose more than it has in 17 years. Consumer demand for loans remained spotty, however, and that slack demand has capped banks' top-line revenue growth. In stark contrast to the U.S. report, a survey of senior lending officers of 45 emerging market banks found that banks report strong and growing demand for loans from consumers and businesses. The first-of-its-kind survey was conducted by the Institute of International Finance, a global association of large banks.


Portugal agrees to bailoutTo help its ailing economy, Portugal agreed to a three-year €78 billion financial bailout program with the European Union and International Monetary Fund.


U.S. becomes fuel exporterThe United States became a net exporter of fuel for the first time in nearly 20 years. U.S. refiner product exports rose 24.4% in the first quarter of 2011 from a year ago, while imports declined 14.4%, according to the American Petroleum Institute.

Global corporate news

Automakers report strong resultsProfits at General Motors tripled on stronger vehicle demand and on gains from the sale of stakes in two of its subsidiaries. Chrysler swung to a quarterly profit as vehicle sales increased dramatically in the first quarter. This is the first profitable period the automaker has had since mid-2006, when it was part of DaimlerChrysler AG.


Marsh & McLennan's first-quarter earnings rose 31% on better-than-expected revenue growth, driven by its risk and insurance and consulting businesses.

The week ahead

• The U.S. Department of Labor reports its producer price index on Thursday, May 12, and its consumer price index on Friday, May 13.
• The Thomson Reuters/University of Michigan index of consumer sentiment is released on Friday May 13.
• Eurostat releases reports on eurozone first-quarter gross domestic product on Friday, May 13.
• Japan's Ministry of Finance releases trade data on Friday, May 13.

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--

Week in Review: Commodities plunge as investors question global recovery

Global economic news

U.S. economic reports point to recovery woesEconomic news in the United States this week continued to underline the struggles the U.S. economy faces as it recovers. U.S. companies added more jobs than expected in April, even as the unemployment rate rose for the first time in five months. The private sector posted the strongest employment gains in five years as nonfarm payrolls rose by 244,000. The unemployment rate rose to 9% from 8.8% in March. That monthly jobs report came one day after news that applications for jobless benefits unexpectedly jumped more than expected last week. That increase was partially the result of auto shutdowns caused by the disaster in Japan. Other reports also pointed to the pressures on recovery. U.S. consumer confidence fell to a five-week low as the highest gas prices in five years negatively affected Americans' attitudes toward spending. 


Manufacturing recovery losing momentumThe Institute for Supply Management's gauge of factory activity edged lower in April to 60.4 from 61.2; any reading above 50 indicates expansion. The report showed production growth and a rising backlog of orders and suggested that supply chain woes resulting from problems in Japan are affecting U.S. manufacturers. Also in April, manufacturing in the United Kingdom fell unexpectedly to a seven-month low amid declining consumer confidence and falling construction orders. In Russia, manufacturing suffered its largest monthly drop since December 2008 after export orders fell and companies scaled back investment.


Inflation concerns mount globallyAround the world, inflation concerns were front and center. The Organization for Economic Cooperation and Development reported that consumer prices in developed economies rose in March at the fastest pace since October 2008. The price increases were driven by faster energy and food inflation. Prices in the OECD's 34 member countries rose by 2.7% for the 12 months ended in March. The core inflation rate, which excludes volatile food and energy, rose to 1.4% in March from 1.3% in February.


Inflation concerns have prompted central banks to tighten monetary policy. The Reserve Bank of India raised rates for the ninth time since March 2010. Central banks in the Philippines, Malaysia, and Vietnam also lifted borrowing  costs, and China's central bank, in its first-quarter monetary policy report, affirmed that controlling inflation is its top priority, even after its manufacturing survey slid in April from March, an indication that growth may slow.


ECB, BOE, and Royal Bank of Australia leave rates unchangedThe European Central Bank left rates unchanged as it tried to balance the challenges of its weaker members with its inflation concerns. In the United Kingdom, the Bank of England kept its benchmark rate at a record low amid signs that its recovery is faltering. The Reserve Bank of Australia also left its benchmark interest rate unchanged for a fifth-straight meeting as a record-low Australian dollar helps contain inflation pressures. 


U.S. banks more willing to lendThe U.S. Federal Reserve Board's quarterly senior loan officer survey released Monday showed that the willingness of banks to lend money to consumers rose more than it has in 17 years. Consumer demand for loans remained spotty, however, and that slack demand has capped banks' top-line revenue growth. In stark contrast to the U.S. report, a survey of senior lending officers of 45 emerging market banks found that banks report strong and growing demand for loans from consumers and businesses. The first-of-its-kind survey was conducted by the Institute of International Finance, a global association of large banks.


Portugal agrees to bailoutTo help its ailing economy, Portugal agreed to a three-year €78 billion financial bailout program with the European Union and International Monetary Fund.


U.S. becomes fuel exporterThe United States became a net exporter of fuel for the first time in nearly 20 years. U.S. refiner product exports rose 24.4% in the first quarter of 2011 from a year ago, while imports declined 14.4%, according to the American Petroleum Institute.

Global corporate news

Automakers report strong resultsProfits at General Motors tripled on stronger vehicle demand and on gains from the sale of stakes in two of its subsidiaries. Chrysler swung to a quarterly profit as vehicle sales increased dramatically in the first quarter. This is the first profitable period the automaker has had since mid-2006, when it was part of DaimlerChrysler AG.


Marsh & McLennan's first-quarter earnings rose 31% on better-than-expected revenue growth, driven by its risk and insurance and consulting businesses.

The week ahead

• The U.S. Department of Labor reports its producer price index on Thursday, May 12, and its consumer price index on Friday, May 13.
• The Thomson Reuters/University of Michigan index of consumer sentiment is released on Friday May 13.
• Eurostat releases reports on eurozone first-quarter gross domestic product on Friday, May 13.
• Japan's Ministry of Finance releases trade data on Friday, May 13.

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: MAY 2, 2011

The Markets Onward and upward: In a week of tornado carnage and wedding bliss, domestic equities reached new year-to-date highs. The Dow hit a level not seen since May 2008, and the small-cap Russell's gains since March 2009 have now pushed it past its October 2007 high to a new record. Despite solid earnings reports from several major tech companies, the Nasdaq had the weakest weekly performance. Meanwhile, the S&P 500 ended the week north of the trading range it's been in since February.

Market/Index 2010 Close Prior Week As of 4/29 Week Change YTD Change DJIA 11577.51 12505.99 12810.54 2.44% 10.65% Nasdaq 2652.87 2820.16 2873.54 1.89% 8.32% S&P 500 1257.64 1337.38 1363.61 1.96% 8.43% Russell 2000 783.65 845.64 865.29 2.32% 10.42% Global Dow 2087.44 2207.21 2255.22 2.18% 8.04% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.30% 3.42% 3.32% -10 bps 2 bps Last Week's Headlines In a first-ever press conference as well as its regular announcement, the Federal Reserve reaffirmed its plan to end its QE2 bond-buying program as scheduled at the end of June. However, it will continue to support the economy by keeping interest rates low for an extended period despite rising food and gas prices. Fed Chairman Ben Bernanke said the Fed will continue to reinvest the proceeds of existing Treasury holdings for the time being. The Fed also raised its inflation forecasts for 2011 to 2.1% -- 2.8%, closer to its historical average, though it anticipates the inflation rate falling once again in 2012 and 2013. It also forecast an unemployment rate of 8.4% -- 8.7% by the end of 2011, slightly lower than the current 8.8%. Bad weather conditions and higher gas prices helped slow the nation's economic growth during the year's first quarter. Though gross domestic product (GDP) didn't flatline, the Bureau of Economic Analysis' initial estimate of a 1.8% annualized growth rate was lower than the 3.1% seen in the previous quarter. The BEA said reduced governmental spending at all levels and higher imports were major factors in the decline; consumer spending, private inventory investments, exports, and business fixed investment, though weaker than in Q4, were the most positive factors. Better weather helped sales of new homes improve in March. The Commerce Department said sales were up 11.1% from February's dismal number, though they were still down almost 22% from the previous March. Home prices fell 1.1% during February in the 20 cities tracked by the S&P/Case-Shiller index. That left the index down 3.3% from the previous February, almost exactly where it was at its low in April 2009. Durable goods orders rose 2.5% in March. It was the third consecutive month of increases, and much stronger than February's 0.7% rise. According to the Commerce Department, transportation equipment such as planes accounted for roughly half of the gain. Shipments and inventories also were up. Though better than in 2009, Greece's 2010 budget deficit was higher than previously estimated, according to Eurostat. The European Union's official statistical agency said the €24.1 billion deficit represented 10.5% of the country's gross domestic product (GDP), ranking just behind Ireland's 32.4%. Total government debt represented 142.8% of GDP, the worst ratio in the EU. However, the budget deficit of the 17 eurozone countries as a whole decreased from 6.3% in 2009 to 6%, though the ratio of government debt to GDP was up from 79.3% to 85.1%. It was Japan's turn for a negative credit outlook from Standard & Poor's. Though it did not change Japan's AA- credit rating, S&P downgraded its outlook from stable to negative, which suggests the likelihood of a downgrade if financial conditions deteriorate in the wake of the recent multiple disasters. After the Fed's announcement, the dollar continued its recent decline; by week's end it had hit roughly $1.48 versus the euro. Eye on the Week Ahead In light of recent weakening in the weekly unemployment figures, the April figure due on Friday will be of interest. Continuing earnings reports will arm-wrestle a heavy load of economic data for investor attention. Key dates and data releases: U.S. manufacturing, construction spending (5/2); auto sales, factory orders (5/3); services sector (5/4); productivity and labor costs (5/5); unemployment/payrolls (5/6). 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: Markets advance on robust profit picture

Global economic news

U.S. Fed to phase out quantitative easingThe Fed announced it would phase out its $600 billion bond-buying program in June. In its first-ever news conference this week, the central bank said it would maintain ultra-low interest rates for the time being.


U.S. gross domestic product up 1.8%U.S. economic growth slowed sharply in the first quarter, to a 1.8% annualized rate, from 3.1% in the last quarter of 2010, the U.S. Department of Commerce reported. Higher prices, especially for gasoline and food, squeezed consumer budgets, winter storms took their toll on economic activity, and a rise in imports reduced the country’s output as well. In addition, the federal government reduced its spending by 7.9%, the sharpest drop in a decade.


U.S. Fed’s inflation gauge rises 3.8%The price index for personal consumption expenditures, the Fed’s key inflation gauge, jumped an annualized 3.8% in the first quarter of 2011. Excluding food and energy items, the price index rose 1.5% during the quarter. The Fed expects the overall inflation measure to climb between 2.1% and 2.8% this year.


U.S. consumer sentiment climbsU.S. consumers were more confident in April than in March, as indicated by a rise in the Thomson Reuters/University of Michigan final index of consumer sentiment to 69.8 from 67.5 in March, which was the index’s lowest level since November 2009. It appears that the improving job market is helping Americans tolerate higher fuel costs.


U.S. jobless claims spikeInitial jobless claims increased unexpectedly by 25,000, to a seasonally adjusted 429,000 in the week ended April 23, the U.S. Department of Labor reported. The four-week average rose by 9,250 to 408,500, marking the first time since mid-February that the average sat above 400,000.


New home sales lag in the United StatesSales of new homes increased by 11.1% in March from February. However, sales were down 21.9% from a year earlier. The median price for a new home sold in March was $213,800, up 2.9% from a month earlier but 4.9% lower than in March 2010. Meanwhile, the Standard & Poor's/Case-Shiller index of property values in 20 cities fell 3.3% from February 2010 to February 2011, underscoring the continued housing market weakness.


Durable goods orders upNew orders for durable goods increased 2.5% in March, the Commerce Department reported. The strength of this report stood in sharp contrast to some other economic reports, and it supports the view that any economic slowdown related to commodity price increases or poor weather could be temporary and brief. The durable goods report pointed to strong growth in a variety of areas, including metals, machinery, computers, software, and automobiles.


Japanese industrial output plummets after earthquakeThe impact of the March 11 earthquake and tsunami was very clear in the country’s report on industrial production in March. According to the Ministry of Economy, Trade, and Industry, output at factories and mines dropped by 15.3% in March from February, the largest monthly decrease since the government began collecting this comparative data in February 1953. In its semiannual report, the Bank of Japan curbed its forecast for growth in real gross domestic product to 0.6% for this year, down from 1.6% in a January forecast. It predicts a strong rebound in 2012, however, to 2.9% growth.


Eurozone inflation up a notch in AprilEuropean inflation reached its fastest pace in more than two years, rising at a 2.8% annualized pace, up from 2.7% in March, according to an initial estimate released by the European Union’s statistics office. An index of executive and consumer sentiment fell to 106.2 from 107.3 in March, indicating a potential gradual slide in business and consumer confidence. Separately, the Markit Eurozone Retail Purchasing Managers Index eased to 52.2 in April from 53.5 in March but remained above its long-term average.

Global corporate news

Oil giants pump up profitsVery strong first-quarter results indicate the oil industry is poised to enjoy substantial profits in 2011. Exxon Mobil reported a 69% jump in first-quarter earnings, Royal Dutch Shell posted a 60% rise in profits, ConocoPhillips’ first-quarter earnings rose 44%, and Chevron's first-quarter earnings grew 36%. All four benefited from higher oil prices. Exxon and Conoco attributed some of the robust results to strong refining margins. Shell mentioned growth in upstream production and ongoing cost-cutting. Exxon also enjoyed a rise in production volumes, while Conoco achieved its results despite a sharp drop in production. Chevron posted stronger refining margins.


French oil company Total reported a 35% rise in adjusted net profit on higher crude oil and natural gas prices. The firm’s unadjusted net profit was 51% higher than a year earlier.


Automakers post varied resultsGlobal automakers were all over the map in their first-quarter earnings. Ford Motor reported a $2.6 billion quarterly profit, its largest first-quarter profit since 1998. However, Honda Motor said its quarterly earnings fell 38% as it struggled to find enough auto parts to bring factory production above 50% capacity. Honda warned that earnings would remain weak for the next two quarters. Meanwhile, Ford said it idled a manufacturing plant in Taiwan and a South African assembly plant as precautionary moves to help conserve parts.


Volkswagen reported a vastly improved net profit on booming emerging market demand. Mitsubishi Motors posted a 42% decrease in its fiscal fourth-quarter earnings because of the yen’s strength and lower domestic production. Daimler’s profit nearly doubled in the first quarter and its revenue rose by 17%, driven by accelerated demand for luxury cars.


Deutsche Bank reboundsDeutsche Bank had its best first quarter since 2007. The large German bank’s net profit rose 7%, benefiting from its recent acquisition of retail bank Postbank, which helps to diversify Deutsche Bank’s mix of banking businesses.


Microsoft profits up, but Windows sales downDespite sharply rising quarterly profits on robust sales of Office and Xbox, Microsoft reported a decline in the sales of its Windows operating system as demand for traditional personal computers weakened because of competition from tablet devices.


Caterpillar soars on emerging market salesCaterpillar, the world’s largest construction equipment maker, surpassed first-quarter earnings estimates on surging sales in developing countries. Net income was more than five times higher than a year earlier, while sales climbed 57%.


Merck tops estimates on cost-cutting, higher salesMerck, the second-largest U.S. pharmaceutical firm, posted a higher-than-estimated first-quarter profit, benefiting from cost reductions and rising sales of its Januvia diabetes pill, which more than offset revenue losses to generic competition.

The week ahead

• Among companies scheduled to release first-quarter earnings are Pfizer, Marathon Oil, Comcast, MasterCard, MetLife, and News Corp.
• The ADP monthly employment report is released Wednesday, May 4.
• Germany’s manufacturers' orders report is released Thursday, May 5.
• The U.S. monthly nonfarm payroll report is released Friday, May 6,
• The U.K. producer price index is released Friday, May 6.

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--