U.S. and global economic news

European debt concerns grow; ECB buys more bondsOn Monday and again Tuesday, the European Central Bank bought Italian and Spanish government bonds to stabilize borrowing costs for the European Union’s third- and fourth-largest economies in a critical and dramatic move to stem Europe’s growing debt crisis. The ECB’s bond purchase program had been inactive for four months before the central bank resumed purchases of Portuguese and Irish bonds last week.

Eurozone production slipsEurozone industrial production shrank 0.7% from May to June, the European Union’s statistics office reported. France’s economy had no growth in the second quarter, while Greece’s economic output contracted 6.9% from a year earlier.

U.S. Treasuries continue to serve as safe havenDespite the downgrade of U.S. sovereign debt from AAA to AA+ by Standard & Poor’s, demand for U.S. Treasury securities remained very high this week. Yields, moving in the opposite direction to bond prices, fell to 2.10% for the 10-year Treasury note on Wednesday and just 0.17% for the two-year note. Yields rose slightly by Friday – to 2.25% and 0.19%, respectively – as a more optimistic mood settled the market somewhat. Few alternatives exist to U.S. Treasuries, given their depth and liquidity, with more than $9.3 trillion in debt outstanding.

U.S. consumer confidence plummetsConfidence among U.S. consumers fell in August to its lowest point since May 1980. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment plunged to 54.9 from 63.7 in July. A decline to 62 was expected in a Bloomberg News survey. Rising pessimism after the downgrade of U.S. debt and the current stock market volatility could weigh down consumer spending.

Gold benefits from heightened uneaseGold lived up to its reputation as an investment to hold amid uncertainty and volatility. The price of an ounce of gold in a forward contract rose to $1,817on Wednesday before dipping below $1,800 Thursday.

U.S. retail sales riseRetail and food services sales were 0.5% higher in the United States in July from June, as consumers spent more on gasoline, electronics, and other merchandise.

U.S. productivity weakened in second quarterU.S. worker productivity fell for the second consecutive quarter, as employee output per hour declined at an annual rate of 0.3% in the second quarter of 2011 after falling 0.6% the previous three months. Declining efficiency and rising costs are disincentives for companies to hire more staff or increase pay.

Jobless claims easeInitial claims for unemployment benefits by U.S. workers fell by 7,000 to a seasonally adjusted 395,000 in the week ended August 6, according to the U.S. Department of Labor. The four-week moving average of new claims fell by 3,250 to 405,000.

German exports dropGerman exports declined in June, in another sign of economic weakness in Europe. Exports from Germany fell 1.2% from May while imports rose 0.3%. Demand for German-produced goods eased as neighboring countries sought to reduce spending because of the sovereign debt crisis and the demand for fiscal restraint.

U.S. and global corporate news

Commerzbank hurt by Greek debt exposureCommerzbank, Germany’s second-largest bank, had a 93% drop in its net profit in the second quarter from the year-earlier period after writing down all of its Greek sovereign debt exposure. Operating profit fell 77%. However, Commerzbank said its core bank is on track for a 2011 operating profit higher than last year’s 1.98 billion euros.

McDonald’s same-store sales up 5.1%Same-store sales at McDonald’s restaurants rose 5.1% in July, as the fast-food giant’s sales grew in all regions. McDonald’s continues to benefit from competitive pricing and an increasingly diverse menu. The company’s system-wide sales grew 14% in July.

Macy’s, Polo, Kohl’s profits up, Penney flatDepartment store chain Macy’s increased its earnings 64% in the second quarter from a year earlier. Same-store sales grew 6.4% while online sales were up 40%. Polo Ralph Lauren posted a 52% rise in first-quarter earnings and projects revenue growth in the high teens to low-20% range.Kohl’s reported a 17% increase in profits, but sales were up less than 4%, below analysts’ expectations. JCPenney had flat profits and lower sales, reflecting its departure from its catalog business.

Cisco SystemsNetworking equipment maker Cisco Systems had a 36% drop in net income in its fiscal fourth quarter as a result of a $772 million restructuring charge. Its revenue rose 3.3% from the year-earlier period, higher than analyst expectations, and the firm’s CEO, John Chambers, said Cisco was making solid progress on turning its fortunes around.

The week ahead

• The U.S. Department of Commerce releases housing starts data on Tuesday, August 16.

• European Union publishes flash GDP data on Tuesday, August 16.

• The U.S. Department of Labor publishes Consumer Price Index figures on Thursday, August 18.

• Existing home sales published by the National Association of Realtors on Thursday, August 18.

• U.S. Conference Board publishes leading indicators report on Thursday, August 18.

• Corporate earnings reports from Lowe’s, Dell, Home Depot, Wal-Mart, Deere during the week.

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.

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