Week in Review: Spain bank woes drive fresh flight to safety

For the week ended June 1, 2012



As the economic situation in Italy and Spain continued to deteriorate, the flight to safety picked up this week. Benchmark borrowing costs in the United States plunged to levels last seen in 1946 and those in Germany and the United Kingdom hit all time lows. German two-year bund yields fell to zero for the first time, while government yields in Italy and Spain hit worrisome levels.
Concern that Spain would not be able to save its troubled banks sparked a broad selloff in global equity markets and the euro. For the week, major stock benchmarks declined 2% to 3%. For the month of May, broad equity indices, including the Dow Jones Industrial Average and Standard & Poor's 300 Stock Index 500, gave back 6% or more after peaking early in May. It was the Dow’s worst month in two years. Crude oil futures fell to seven-month lows — below $83 a barrel — reflecting renewed signs of weakness in the US economy, rising oil stockpiles, and deeper eurozone worries. Oil prices have plunged by close to 25% since their $110-a-barrel peak in February; the price of a gallon of regular gasoline in the United States fell 45 cents to $3.67 per gallon and is expected to drop further.
After May ended with financial markets down substantially for the month, June began with a spate of more bad news from the eurozone, including record-high unemployment, along with disappointing data on Chinese manufacturing activity and US employment, which grew by its smallest monthly margin in a year. The US unemployment rate rose to 8.2%.

US and global economic news

Spanish woes intensify eurozone crisisThe eurozone crisis reached a new level of intensity this week as the Spanish government battled to save the troubled Bankia. Last Friday Spain announced plans to nationalize the bank, which is a real estate lender in need of a €23.5 billion bailout. The European Central Bank this week refused the Spanish government's request to recapitalize Bankia. That refusal has forced the Spanish government to consider an alternative––issuing bonds to the bank, which then would be used as collateral to raise cash from ECB lending facilities. As leaders grappled with a solution, ECB President Mario Draghi urged Europe's political leaders to come up with a longer-term vision for the region. Elsewhere companies and banks seemed to be steeling themselves. Multinational companies focused on retrieving cash from Greece and some of China's biggest banks cut off European counterparts from borrowing and derivatives trading.
Spanish retail sales fell by a record 9.8% in April from a year earlier, the twenty-second consecutive monthly decline. The country’s unemployment rate is at 24.4%. The European Commission said it would recommend extending the timeline for the country to reach targets on its deficit level, recognizing the challenges faced by the region’s fourth-largest economy and the financial strain of having to bail it out. 

Weak US jobs data adds to spate of bad newsMonthly US payrolls rose by much less than expected in May, as American employers added 69,000 jobs, far fewer than the 150,000 that had been forecast. The nation’s jobless rate rose to 8.2% from 8.1% in April, while hours worked fell. Private payrolls rose 82,000, half of the projected 164,000 increase. Government payrolls declined by 13,000. April’s jobs increase was revised down to 77,000 from a previously reported 115,000. Initial unemployment insurance claims rose by 10,000 to 383,000 for the week ended May 26. The US economy grew just 1.9% annually in the first quarter, according to the latest update from the US Department of Commerce, which had previously estimated a growth rate of 2.2%. The Conference Board’s consumer confidence index fell to 64.9 in May from 68.7 in April, the third straight month of declines. 
Eurozone data show continued regional weaknessUnemployment in the eurozone reached an all-time high of 17.4 million people in April, 1.8 million more than a year earlier, and 110,000 higher than in March. The seasonally adjusted unemployment rate remained at 11%. Manufacturing activity in the 17-nation economic region reached a three-year low, as the final manufacturing purchasing managers’ index fell to 45.1 in May from 45.9 in April. It was the index’s tenth straight month of contraction. Eurozone economic confidence fell to its lowest point since October 2009, according to a report from the European Commission. An index of eurozone executive and consumer sentiment dipped to 90.6 in May from 92.9 in April. 
Gap between safe-haven and risky sovereign bonds growsYields on two-year German bunds fell to -0.012% while 10-year bunds yielded 1.123%. In sharp contrast, 10-year Spanish government bond yields climbed to 6.56%. This is viewed as dangerously close to the 7% mark, at which point Spain’s sovereign bonds may be seen as unsustainable, prompting a bailout initiative. Italian 10-year bond yields inched up to just below 6%, also indicative of troubles in the eurozone’s third-largest economy. 

Chinese manufacturing activity slows, economic stimulus initiatedTwo measures of Chinese manufacturing activity indicated further slowing in the world’s second-largest economy. The official China purchasing managers index fell to 50.4 from 53.3 in April, while HSBC’s gauge fell to 48.4 in May from 49.3 in April. Various reports indicated that Chinese leaders are quietly beginning to add stimulus to the country’s economy. Since early April, the National Development and Reform Commission has approved major infrastructure projects including clean-energy hydropower stations, four new airports, and the renovations or expansions of three large steel mills.
India’s economy slowsIndia’s economic growth tapered to its slowest pace since 2003 in the first quarter of 2012, with the nation’s gross domestic product growing 5.3% from a year earlier, far slower than its 8% growth rate of recent years. Economists had forecast 6.1% GDP growth.
Japan posts positive dataCapital spending by Japanese companies rose 3.3% in the first quarter, corporate current profits were up 9.3%, and corporate sales were 0.6% higher than a year earlier. Japan’s economy grew an annualized 4.1% in the quarter, based on preliminary GDP data. Much of this activity is a result of government spending to spur recovery from the earthquake and tsunami of March 2011. Domestic Japanese sales of new cars, trucks, and buses rose 66% in May from a year earlier, according to the Japan Automobile Dealers Association.

US and global corporate news

IPO issuers get cold feet after Facebook’s disappointmentWould-be issuers of initial public offerings appear to be waiting for signs of a shift in market conditions before they attempt to go where Facebook ventured and stumbled. London-based jeweler Graff Diamonds, travel-listings website Kayak, and Formula One Group are holding off from going public for now. Graff was a day away from pricing its IPO when it hit the pause button. Kayak has yet to launch its roadshow to pitch its stock to potential investors; it is now taking a break, but its revenue is growing despite the company facing stiff competition in the online travel services space. Formula One was planning to launch a preliminary prospectus for a $2.5 billion IPO with the Monetary Authority of Singapore on June 5.
Two more Canadian banks post solid profitsBank of Nova Scotia and Canadian Imperial Bank of Commerce joined three other Canadian banks in posting strong earnings for the latest quarter. Scotiabank’s profit fell almost 10% after benefiting from acquisition-related gains a year ago. Excluding those gains, the bank grew its earnings by 16%. Its adjusted earnings beat expectations. CIBC also beat analyst expectations in posting a 6% increase in earnings.
Research in Motion warns of money-losing quarterCanadian BlackBerry maker Research in Motion warned that it would likely lose money for the second straight quarter. The firm is trying to cut costs and turn its business around before launching the next BlackBerry later this year and has hired external advisers to help management determine how to salvage or sell parts of its business.
Moody’s downgrades Nordic banksMoody’s Investors Service this week downgraded the ratings of nine Danish financial institutions, citing a “weak operating environment, pressurized asset quality, and poor profitability.” Last week, Moody’s lowered its ratings for two Swedish banks and a Norwegian bank. Just as noteworthy is the criticism some of these banks and asset managers have had for Moody’s, and the market response, which has been to ignore the downgrades and send bond and stock prices higher. Among the most severe downgrades was a three-notch downgrade of mortgage lender Nykredit Realkredit A/S and its Nykredit Bank A/S unit.
US automakers post robust sales in MayChrysler Group continued to register rapid sales growth, with a 30% increase in May from a year earlier, while fellow US automakers Ford Motor (a 13% sales increase) General Motors (up 11%) also did well.

The week ahead

• The US Department of Commerce releases its May factory orders report on Monday, June 4.Japan issues its monthly industrial production report on Wednesday, May 30.
• The Institute for Supply Management releases its non-manufacturing report for May on Tuesday, June 5.
• Markit releases the eurozone Services Purchasing Managers' Index for May on Tuesday, June 5.
• The European Union issues its gross domestic product (GDP) data for May on Wednesday, June 6.
• The US Federal Reserve Board releases its Beige Book for May on Wednesday, June 6.
• Japan ues its quarterly GDP report on Thursday, June 7.

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: Stagnant jobs situation troubles markets

U.S. and global economic news

U.S. job growth fizzlesU.S. employment stagnated in August, with no job growth, according to the monthly nonfarm payroll report released by the Labor Department Friday morning. It was the first time in 11 months there was no net increase in U.S. jobs. The disappointing news, however, was influenced by the 45,000 Verizon workers who were out of work because they were on strike at the time the report was compiled. Still, the report's employment picture fell far short of the 60,000- to 65,000-job gain that had been anticipated by economists, and the U.S. unemployment rate remained at 9.1%. 

More significantly, the weak showing reflected a lack of confidence among U.S. employers following the debt-ceiling showdown in Washington, the S&P downgrade of U.S. debt, the plummeting stock market, and ongoing concerns about Europe’s sovereign debt crisis. While the report conveyed a flat employment picture, it did indicate an increase of 17,000 jobs in the private sector.



ADP reports 91,000 more private sector jobsPrivate businesses added 91,000 jobs in August, on a seasonally adjusted basis, according to a report released by payroll giant Automatic Data Processing (ADP) and Macroeconomic Advisers, a consultancy. Almost all the hiring occurred at small businesses (a gain of 58,000) and medium-size businesses (30,000 new jobs). Businesses with 500 or more employees added only 3,000 jobs.


U.S. manufacturing growth stays surprisingly strongU.S. manufacturing activity grew slightly in August, according to the Institute for Supply Management’s factory index, which fell slightly to 50.6 from 50.9 in July. Economists had expected a drop to 48.5.


Weekly jobless claims ease slightly in United StatesInitial claims for unemployment benefits by U.S. workers fell by 12,000 to a seasonally adjusted 409,000 in the week ended August 27, according to the Labor Department. However, the four-week moving average of new claims rose by 1,750 to 410,250.



Consumer confidence indices slipU.S. consumers lost confidence in August, according to several confidence gauges. The Conference Board’s index of consumer confidence dropped to 44.5 from 59.2 in July, its lowest reading since April 2009. The survey also showed that consumers expect inflation to rise to 5.8% in the next 12 months. Bloomberg’s Consumer Confidence Index fell to -49.1 from -47.0 in July, its second lowest level in two years. The Thomson Reuters/University of Michigan final index of consumer confidence in August slipped to its lowest level since November 2008.


Consumer spending rose in JulyU.S. consumers spent more than expected in July, on the basis of a report from the U.S. Department of Commerce, which showed that consumer spending rose 0.8%, the largest gain in five months. Income rose 0.3%, and the savings rate slowed to 5.0% from 5.5% in June, a trend that suggests a rise in confidence about the economy.


Eurozone confidence fadesEconomic confidence among Eurozone businesses and consumers fell in August. The Economic Sentiment Indicator declined for the sixth-straight month, to 98.3 in August from 103.0 in July, the European Commission reported. It was the weakest reading since March 2010 and far below the 100.5 expected by economists. The consumer confidence index slid to -16.5 from -11.2, its largest one-month decline since 1990. In a separate report, Eurostat, the European Union statistics office, reported that inflation remained at 2.5% in August and unemployment stood unchanged at 10.0% in July.



Global manufacturing activity slumpsManufacturing activity slumped across much of the world in August, according to various reports. Manufacturing in the Eurozone contracted, U.K. factory activity hit a two-year low, and a Chinese manufacturing index straddled the line between expansion and contraction, at 50.9, just above its 29-month low recorded in July. South Korea’s purchasing managers' index fell into negative territory, to 49.7 from 51.3 in July.



German economic resilience a positive sign for EuropeBullish reports from Germany indicate that Europe’s largest and strongest economy continues to grow. Unemployment remained at its lowest level in two decades in August as unemployment fell for the twenty-sixth consecutive month. The unemployment rate remained at 7%, its lowest level since German reunification in 1991. Machine orders grew 9% in July from a year earlier.


Canadian economy shrinksCanada’s economic output shrank unexpectedly in the second quarter, its first contraction in two years. Canada depends heavily on international trade and has been hurt by the U.S. and European economic slowdown. Canadian GDP declined 0.1% in the second quarter, for an annualized 0.4% contraction. Among the G-7 nations, only Japan and Canada had a contraction in economic activity in the second quarter.

U.S. and global corporate news

U.S. auto sales riseSales rose in August for U.S. car manufacturers. Chrysler Group reported a 31% jump in sales, while General Motors and Nissan Motor each reported close to a 20% increase and Ford Motor had an 11% gain. Because of a slow recovery in production after the March tsunami, Japan’s Honda Motor and Toyota Motor reported decreases in U.S. sales of 24.3% and 12.7%, respectively.




U.S. Justice Department a hard sell on mergerThe U.S. Department of Justice filed an antitrust lawsuit to block a proposed $39-billion merger between AT&T and T-Mobile USA, saying that it would substantially decrease competition, lead to higher prices, and reduce product innovation.

Bombardier profit soarsCanada’s transportation giant Bombardier posted a 53% jump in second-quarter profit as revenue grew in both its aerospace and transportation divisions.

The week ahead

• The European Union reports its quarterly gross domestic product data on Tuesday, September 6.
• The U.S. Federal Reserve Board releases its "Beige Book," providing commentary on current economic conditions, on Wednesday, September 7.
• Germany, France, the U.K., Canada, and Australia release their monthly trade figures next week.
• The U.S. Commerce Department releases its trade balance data for August on Thursday, September 8.
• The U.S. Labor Department publishes its weekly report on unemployment insurance claims on Thursday, September 8.

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.

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.

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.

Week in Review: Unresolved U.S. debt drama weighs on markets - Week ending July 29, 2011

Global economic news

U.S. economy barely expands in second quarterThe U.S. economy grew anemically in the second quarter. Gross domestic product grew at an annualized, seasonally adjusted pace of 1.3%, the U.S. Department of Commerce reported. The rate of growth in the first quarter was revised downward, to 0.4% from the earlier estimate of 1.9%. Economists had expected the GDP to rise 1.8% in the second quarter. Consumer spending rose at an annualized 0.1% rate, its weakest level in two years.

Spain on review for debt downgradeMoody's Investors Service placed Spain's "Aa2" credit rating on review for a possible downgrade. The yield on Spain's 10-year government bond rose 1.7 percentage points to 6.136%, widening the spread between Spanish sovereign debt and similar German debt to 354.2 basis points. This underscores the financial strain the second Greek bailout package is having on other financially weak European countries.

U.S. jobless claims fall to 398,000Initial jobless claims fell by 34,000 to 398,000 for the week ended July 23, below the 400,000 level, which generally indicates an economy with overall job growth. The four-week average fell by 8,500 to 413,750.

Chicago Purchasing Managers’ Index fallsThe Chicago Purchasing Managers’ Index decreased to 58.8 in July, from 61.1 in June, according to the Institute for Supply Management. A reading of 60.2 had been expected. Readings above 50 indicate an expanding business sector. 

U.S. home sale contracts rise in JuneThe number of contracts to buy previously owned U.S. homes surprisingly rose in June, as buyers were attracted to lower house prices and lower borrowing costs. The 2.4% rise in pending home sales followed a gain of 8.2% in May. Because of high cancellation rates, however, its difficult to gauge whether this will lead to higher home sales.

May home prices flatU.S. home prices rose in May from April but remained below year-earlier levels. The Case-Shiller index of 10 major metropolitan areas rose 1.1% and the 20-city index was 1% higher in May than a month earlier. Year to year, prices for the two indexes were down 3.6% and 4.5%, respectively.

Durable-goods orders dropDurable-goods orders fell by 2.1% in June, the second decline in three months, pointing to ongoing economic sluggishness, according to the U.S. Commerce Department.

Consumer confidence gets mixed readingU.S. consumer confidence rose in July, according to the Conference Board. Its monthly index of consumer confidence rose to 59.5 from 57.6 in June. However, the Bloomberg Consumer Comfort Index fell to -46.8 in the week ended July 24, from a reading of -43.3 the previous week. The Reuters/University of Michigan’s consumer sentiment index fell to 63.7 in July from 71.5 in June.

Eurozone confidence dipsBusinesses and consumers in the eurozone grew less confident about their prospects in July, according to the Economic Sentiment Index, the European Commission’s monthly survey of economic confidence. The measure dropped to 103.2 from 105.4 in June. It was the ESI’s fifth-straight monthly decline.

U.K. consumer confidence fallsConsumer confidence in the U.K., already sagging, fell further in July. A sentiment index fell to -30, its lowest point since April, from -25 in June and -22 a year earlier. All components of the index fell. The U.K. economy grew a meager 0.2% in the second quarter after being flat for the previous half year.

India fights inflation with higher interest rates
The Reserve Bank of India, the country’s central bank, raised interest rates by 0.5 percentage points to 8.0%, its eleventh increase since March 2010. Indian inflation reached 9.44% in June.

German inflation creeps higherConsumer prices rose 0.4% in Germany in July, and 2.4% from a year earlier. Because Germany is dependent on the European Central Bank (ECB) for monetary policy and the ECB must also watch out for weak European economies, Germany may have to accept rising inflation for now.

Global corporate news

UPS delivers higher profitsGlobal shipping firm United Parcel Service posted a 26% growth in second-quarter profit on strength in China and Europe. UPS said it expects robust profit growth on international routes in the coming months. 

European carmakers outpace American rivalsGerman auto maker Daimler and France’s PSA Peugeot-Citroen both announced healthy profit increases this week, while Ford’s profit fell andChrysler posted a loss for the second quarter. Peugeot reported a 19% rise in profit for the first half of 2011 despite the impact of the Japanese earthquake and tsunami and the production interruption that created. Daimler had a 29% rise in second-quarter net profit on thriving demand for new trucks and luxury cars in many major global markets. Ford’s profit was trimmed by spending on new-model development and higher prices for commodities. Chrysler’s loss was due to a $551 million one-time charge to repay loans to the United States and Canadian governments. 

Higher prices boost oil giants’ profitsRoyal Dutch Shell, British Petroleum, and Exxon all benefited from higher oil prices in the quarter ending June 30. BP bounced back from a $17-billion loss a year ago, stemming from a $32-billion charge to cover costs of the Gulf of Mexico oil spill, to a second-quarter net profit of $5.62 billion this year. Total revenue rose 39% in the quarter. Shell’s profits rose to $8.7 billion from $4.4 billion a year ago. Exxon’s net income was $10.7 billion, up from $7.6 billion a year ago.

RIM, Nokia and Nintendo show impact of losses to AppleResearch in Motion, Nokia, and Nintendo continue to struggle in the face of very tough competition from Apple and Google in the smart phone space. Research in Motion announced a plan to cut 2,000 jobs, 11% of its workforce, as the BlackBerry maker struggles with shrinking market share of North American smart phone sales. Nokia’s debt was downgraded two notches, to "Baa2" from "A3," by Moody’s Investor Service, reflecting the sharp deterioration of Nokia’s market position. Apple and Samsung Electronics overtook Nokia for the top two positions in the global smartphone market in the second quarter, according to market research firm Strategy Analytics. Nintendo cut its profit forecast for the year ending next March by more than 80% as its 3DS hand-held player has been hurt by gamers’ appetite for games that can be played online or on smart phones, including Apple’s iPhone.

Dunkin’ Donuts serves up IPO, coffee competition to heat upThe hunger for initial public offerings continued this week, with 11 IPOs, including an offering from Dunkin’ Donuts that raised $423 million, and will promote the franchiser’s growth.

The Week Ahead

• Pfizer, Comcast, MasterCard, Prudential, and Time Warner report earnings next week.
• The European Monetary Union releases its unemployment report on Monday, August 1.
• The ADP monthly employment report is released on Wednesday, August 3.
• The Bloomberg Consumer Confidence Index is released on Thursday, August 4.
• The U.S. nonfarm payroll report and U.K. producer price index are released on Friday, August 5. 

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.

Week in Review: Stocks higher as debt deals and positive earnings cheer investors

U.S. and global economic news

European leaders agreed to aid package for GreeceEuropean leaders on Thursday agreed on a plan to reduce Greece's debt burden in an effort to prevent contagion to other weak economies in the eurozone. The overall size of the bailout package to cover Greece's financial gap is €109 billion and will include the participation of the International Monetary Fund and the private sector. The plan also cuts interest rates on bailout loans to Greece and doubles the repayment period to 15 years. Officials said the interest rates on Ireland's and Portugal's bailout loans will be cut to the same low level. European leaders also agreed on new steps to prevent the spread of Greece's debt problems. In the wake of the debt deal, Fitch Ratings said the role of the private sector in the Greek bailout plan would constitute a "restrictive default." In other words, the proposed debt exchange implies a 20% net present value loss for banks and Greek government debt holders. 



U.S. lawmakers continue debate over deficit reduction dealIn the United States, Congress and the White House continued negotiations to cement a deal to increase the government's borrowing authority while cutting spending and overhauling the tax code. The White House has said if the government's $14.29 trillion debt ceiling is not raised by August 2, the United States will run out of cash to pay its bills. Standard & Poor's repeated  a warning that there is a 50% chance that it will lower the U.S. credit rating within three months. The company first warned of this possibility on July 14. 


Weekly U.S. jobless claims riseU.S. jobless claims unexpectedly rose last week after declining for two weeks in a row. Claims increased  by 10,000 to a seasonally adjusted 418,000, after declining for two weeks in a row. The four-week moving average of new claims, considered a more reliable indicator of the performance of the labor market, fell last week by 2,750 to 421,250. Economists consider the economy to be adding more jobs than it is shedding when  the weekly claims number falls below 400,000.


German business confidence fallsGerman business confidence fell more than expected in July, according to the Ifo Institute's business climate index, which dropped to its lowest level in nine months.



U.S. home sales fallSales of previously owned homes fell 0.8% in June to a seasonally adjusted annual rate of 4.77 million, the lowest level in seven months, amid weakness in the job market and overall economy. It was the third-straight monthly decline and worse than forecast. Also in June home construction rose to the highest level in five months. Compared with the same month a year earlier, new home construction was up 16.7%; however construction is still below a healthy level, which economists say would be a pace of 1 million to 1.5 million units. In June, that annual level was at 629,000. Meanwhile, the National Association of Home Builders reported that confidence among homebuilders rose in July from June but remained at depressed levels as the housing market continued to struggle.


U.S. leading indicators riseThe Conference Board reported that its index of U.S. leading indicators rose 0.3% in June  from a 0.8% increase  in May. The gauge measures the outlook for the next three to six months.


U.S. and global corporate news



Morgan Stanley performance surprises investorsMorgan Stanley posted a smaller-than-expected second-quarter loss, which sent the company's stock surging the most in two years. The loss came from a $1.7 billion charge related to the conversion of Mitsubishi UFJ Financial Group's preferred Morgan Stanley stake. Morgan Stanley posted a 14% gain in trading revenue and was the only major U.S. bank to report a gain in this area. Bank of America reported losses of $8.83 billion in the second quarter as mortgage-related charges outweighed lower credit costs. Goldman Sachs Group's second-quarter profit came in at $1.05 billion, significantly lower than expectations, after market conditions led the firm to reduce risk taking to the lowest levels in five years. Even so, profits rose 77% from $613 million a year ago.



Tech companies report strong profitsApple's fiscal third-quarter earnings more than doubled, exceeding analysts' expectations, as the company reported surging sales of the iPhone and iPad. Microsoft's profit rose 30% in its fiscal fourth quarter helped by the software and service contracts of its corporate customers. IBM reported an 8% increase in net income as the 100-year-old company got a boost from robust sales of new models of its mainframes. The company also lifted its profit forecast amid buoyant demand for software. Intel, the world's largest chipmaker, reported that its sales rose 21% while net income rose to $2.95 billion from $2.89 billion in the year-earlier quarter. The company also forecast third-quarter sales that exceeded some analysts' estimates. EMC reported a 28% gain in second-quarter earnings as companies increased spending on storage products and software for Internet-based computing, and eBay reported a 25% jump in revenue, while net income fell 31%.


Coke, Johnson & Johnson, and Harley-Davidson announce resultsCoca-Cola's second-quarter profit rose 18%. The company got a boost from a bottler acquisition and from strong volume growth overseas. Johnson & Johnson reported a 20% decline in second-quarter profit on costs associated with its exit from its heart-device business and product recalls. Profits, however, exceeded Wall Street expectations. Harley-Davidson, the largest U.S. motorcycle manufacturer, said profit rose after it increased sales in the U.S. market for the first time in almost five years.



Borders to liquidate remaining storesBorders was forced to liquidate its remaining 399 stores after receiving too few bids in a bankruptcy auction. The company, which employs about 10,700 people, is now expected to go out of business by the end of September.


Zillow raises $69.2 million in IPOZillow, the online real estate information service, raised $69.2 million in its initial public offering.


Express Scripts to buy Medco; CNOOC to purchase OPTI CanadaExpress Scripts agreed to buy Medco Health Solutions for $29.1 billion in cash and stock. In merging, the companies will form the largest manager of drug prescription services with nearly a third of the market. China's largest offshore-oil producer, CNOOC, agreed to buy bankrupt Canadian oil sands developer OPTI Canada for about $2.1 billion. The agreement comes as China seeks to invest in energy projects amid a global commodities boom. In past deals, Chinese firms have targeted minority stakes in Canadian companies.



Harry Potter movie sales set recordThe last of the long-running series of Harry Potter films, Harry Potter and the Deathly Hallows — Part 2, from Time Warner's Warner Bros. Pictures set a sales record for its U.S. opening and took in nearly one half a billion dollars worldwide.

The week ahead

• 3M, Boeing, Exxon Mobil, DuPont, Merck, and Chevron report earnings next week.
• The Standard & Poor's/Case-Shiller Composite-20 Home Price Index is released on Tuesday, July 26.
• The Conference Board reports on consumer confidence on Tuesday, July 26.
• The European Commission publishes its consumer confidence indicator for the eurozone on Thursday, July 28.
• The Nomura/JMMA (Japan Materials Management Association) Purchasing Managers' Index is released Thursday, July 28.

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.

Market Week: Week ending July 1, 2011

The Markets Greek revival: After domestic equities' weeks-long downdraft, last week's five straight days of fireworks were something to celebrate. The Dow had triple-digit gains on all but one of those days, while the Global Dow gained more in a single week than it did in the entire first quarter. The S&P 500 had its biggest percentage gain since mid-2009, while the NASDAQ and Russell 2000 built on the prior week's strong performances. However, the renewed confidence in equities wasn't good news for Treasury debt. As the Fed's QE2 bond-buying program came to an end, the yield on the 10-year note had its biggest weekly gain of the year, pushing prices down.

Market/Index 2010 Close Prior Week As of 7/1 Week Change YTD Change DJIA 11577.51 11934.58 12582.77 5.43% 8.68% NASDAQ 2652.87 2652.89 2816.03 6.15% 6.15% S&P 500 1257.64 1268.45 1339.67 5.61% 6.52% Russell 2000 783.65 797.79 840.04 5.30% 7.20% Global Dow 2087.44 2041.17 2156.11 5.63% 3.29% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.30% 2.88% 3.22% 34 bps -8 bps Last Week's Headlines The Greek parliament approved a €78 billion package of budget cuts, tax increases, and asset sales. The austerity measures were needed to forestall default on the country's bonds in two weeks, obtain another installment of last year's bailout package, and enhance the odds of receiving future aid. Whether they signal better things to come or simply the start of the traditional home-buying season, home prices were up by a welcome 0.7% in April. It was the first increase in eight months for the S&P/Case-Shiller home price index. Consumer spending stalled in May but the 0.3% lift in incomes roughly equaled April's increase, according to the Bureau of Economic Analysis. However, adjusted for inflation and taxes, income was up 0.1%, and inflation-adjusted spending fell 0.1%. U.S. manufacturing accelerated in June, rising 1.8%; new orders, production, and inventories also rose during the month. It was the 23rd consecutive month of expansion in the sector, according to the Institute for Supply Management. Construction spending fell slightly in May, the Commerce Department said, and was 7.1% below that of last May. French Finance Minister Christine Lagarde was named to replace Dominique Strauss-Kahn as managing director of the International Monetary Fund, which plays a key role in international assistance for Greece. Eye on the Week Ahead After last week's strong gains, the possibility of some profit-taking can't be ruled out as traders return from the holiday weekend. The latest unemployment data on Friday will also be of interest, and the European Central Bank will meet on Thursday to decide whether to raise interest rates. Key dates and data releases: factory orders (7/5); U.S. services sector (7/6); unemployment/payrolls (7/8). 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 volatile as Greece seeks aid, data show sluggish recovery

Global economic news

EU leaders promise aid to GreeceEuropean Union leaders promised to help Greece avoid a debt default as long as Greek Prime Minister George Papandreou pushes through a package of budget cuts next week. Leaders pledged to do whatever it takes to stabilize the eurozone economy. Greece has been in talks with European and international officials over €5.5 billion ($7.9 billion) in austerity measures as a necessary step to receiving its next quarterly disbursement on its existing loan as well as securing a second aid package. Greece will now have to get €78 billion of austerity measures through parliament.

U.S. Federal Reserve Board lowers growth forecastThe U.S. Federal Reserve Board lowered its forecasts for economic growth and employment in 2011 and 2012. The Fed now projects economic growth of 2.7% to 2.9% in 2011, down from 3.1% to 3.3%. It currently predicts an unemployment rate of 8.6% to 8.9% in the final quarter of this year, compared with a rate of 8.4% to 8.7% projected in April. However, the Fed noted that several factors holding back growth are temporary, including the impact of higher energy prices and disruptions to manufacturing caused by Japan’s earthquake.


Japan posts near-record trade deficitJapan recorded its second-largest trade deficit ever in May, as the nation continued to feel the aftereffects of its March earthquake and tsunami and subsequent disruption to exports. Higher fuel costs caused the price of imports to rise. Despite Japan’s recent struggles, many analysts expect the economy to resume growth in the July-to-September quarter, because industrial output has started to show signs of improvement.


Italian banks trading haltedTrading in Italian banks was suspended Friday after a sharp drop in stock prices. It is rumored that several Italian banks could fail a Europe-wide stress test in July. Moody’s Investors Service also warned that some Italian banks face possible debt rating downgrades.


U.S. durable goods reboundA 1.9% rebound in orders for long-lasting manufactured goods in May, reported by the U.S. Department of Commerce, gave hope that recent economic weakness would turn out to be temporary. Durable goods orders had fallen 2.7% in April after the March 11 earthquake and tsunami in Japan had caused disruptions in the supply of automobile and electronics components.



U.S. first-quarter gross domestic product revised up to 1.9%The U.S. economy grew slightly faster in the first quarter of 2011 than had been previously estimated. The Commerce Department revised its GDP growth figure to an inflation-adjusted annualized rate of 1.9% from its previous estimate of 1.8%.


U.S. home sales fall furtherThe National Association of Realtors reported that both existing and new home sales slowed in May. Sales of previously occupied homes in the United States fell 3.8% from April to their lowest level in six months. Purchases of new U.S. houses fell 2.1% from April, according to the Commerce Department. However, preliminary figures showed a jump in contract signings, a trend that points to a possible pickup in future sales.


U.S. jobless claims upInitial claims for unemployment benefits by U.S. workers rose by 9,000 to a seasonally adjusted 429,000 in the week ended June 18. The four-week moving average of new claims remained unchanged from the previous week’s revised figure of 426,250.


U.S. consumer confidence dropsU.S. consumer confidence fell in the period ended June 19 for the first time in five weeks, according to the Bloomberg Consumer Comfort Index, which dropped to -44.9 from -44.0 a week earlier. A high unemployment rate, higher food costs, and lower home values all contributed.


Eurozone consumer confidence slipsConsumers in the 17 countries that use the euro were slightly less confident in June, according to an early estimate from the European Commission’s monthly survey. The measure of confidence slipped to -10.0 from -9.9 in May. Both readings were better than April’s -11.9.


Eurozone economies contract overallGermany and France were the only eurozone nations in which private-sector activity grew in June. Most of the remaining 15 nations had economic contractions for the first time since November 2009. Output by both manufacturing and services firms slowed, sending the Markit eurozone Purchasing Managers’ Composite Index down to 53.6 in June from 55.8 in May.


German business confidence rises; economic expectations fallGerman business confidence improved in June, its first move upward since February, according to German research institute Ifo. Business confidence reached 114.5, up from 114.2 in May. Another report showed economic expectations fell much more than expected in June. The Center for European Economic Research, ZEW’s widely watched index fell to -9.0 in June from a revised 3.1 in May. A decline to -4.1 had been forecast.

Global corporate news

FedEx posts sharply better profit, issues positive forecastFedEx reported a 33% growth in its quarterly profit and forecast annual 2012 earnings above Wall Street expectations. Because of the world’s largest air-cargo carrier’s extensive reach, it is seen as a bellwether of global trade. While acknowledging the short-term impact of higher oil prices, poor weather, and Japan’s earthquake, FedEx forecasts a 3% rise in U.S. gross domestic product in 2012, after 2.5% growth in 2011, and a 4.3% rise in U.S. industrial production in 2012 after a 4.2% increase in 2011.


Oracle posts strong profits, but softness in hardwareTechnology giant Oracle posted a 36% rise in profits and a 13% growth in revenue for its fiscal fourth quarter. However, declining hardware product sales — a new area for Oracle as a result of its Sun Microsystems acquisition last year — gave investors cause for concern. Meanwhile, Oracle’s traditional software business thrived, with new sales up 19%.


Lennar earnings down 65%Homebuilder Lennar reported a 65% decrease in its second-quarter profit, exceeding very low expectations, as oversupply and foreclosures weighed on home prices and sales. Lennar’s overall revenue fell by 6.1%, and its revenue from home sales was off by 6.5%.


Kroger profit higherSupermarket chain Kroger posted a 16% increase in its fiscal first-quarter earnings, surpassing estimates, as the company benefited from cost controls and sales growth. Kroger increased sales 11% on low prices and a strategy of building customer loyalty.


Supreme Court sides with Wal-Mart on lawsuitThe Supreme Court threw out an enormous employment-discrimination lawsuit against Wal-Mart Stores, ruling that 1.6 million female alleged victims had too little in common to form a single class of plaintiffs. The decision on the largest class-action lawsuit in U.S. history is expected to affect other employment class-action suits.

The week ahead

• On Monday, June 27, the U.S. Department of Labor releases the core Personal Consumption Expenditures prices data for May.
• On Monday, June 27, Nike releases its quarterly earnings report.
• On Tuesday, June 28, the Conference Board releases the June Consumer Confidence report.
• On Wednesday, June 29, General Mills and Monsanto release their quarterly earnings reports.
• On Thursday, June 30, the U.S. Labor Department releases weekly data on initial jobless claims.
• On Friday, July 1, the European Union, the United Kingdom, and Germany release data on their PMI Manufacturing Indexes.

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 ended June 10, 2011: Stocks fall as investors question strength of economic recovery

Global economic news

U.S. trade deficit narrows; China's surplus less than expectedThe U.S. trade deficit unexpectedly narrowed amid record exports and a plunge in auto and oil imports. The gap shrank 6.7% to $43.7 billion, the lowest since December. Purchases of goods from Japan dropped by a record $3 billion in the aftermath of the earthquake and tsunami. Stocks rallied after the news, on hopes that trade would help boost economic growth. Meanwhile, China reported a less-than-expected $13.1 billion trade surplus in May as surging imports signaled that the nation's demand may support global growth while adding pressure for higher interest rates.

ECB signals rate increase; BOE keeps rates on holdThe European Central Bank signaled it is likely to raise interest rates in July. ECB President Jean-Claude Trichet said "strong vigilance" is needed to contain inflation. The bank raised rates in April for the first time in nearly three years and was the fifth major central bank in the developed world to begin raising rates from the lowest levels of the financial crisis. The Bank of England meanwhile kept its main rate at 0.5% for the twenty-seventh month in a row. Eurozone inflation was running at 2.7% in May, well above the ECB's target of just under 2%.

Bank of Korea raises rates; Indonesia rates unchangedThe Bank of Korea raised interest rates for a third time this year to rein in inflation, which has exceeded its target range, and to curb record household debt. The bank increased the benchmark seven-day repurchase rate to 3.25% from 3%. Korea's rate increase followed one by Thailand on June 1, as job growth and costlier energy caused consumer price gains to exceed the Bank of Korea's 4% ceiling. That was Thailand's fourth rate increase this year. Also this week, the Bank of Indonesia left its reference rate at 6.75%, as a strengthening currency helped contain inflation.

ECB opposes Greek bailoutThe European Central Bank this week maintained its resistance to participating in a bailout of Greece. The Greek budget shortfall may amount to $130 billion through 2014. Governments have been trying to come up with a new aid package by a European summit on June 23 to June 24. The International Monetary Fund has threatened to withhold its share of Greece's bailout until governments that guarantee the financing needs for the next 12 months are covered. The IMF was due to turn over €3.3 billion this month.

Japan's GDP contracts 3.5%Japan's economy contracted 3.5% in the three months ended March 31, less than the 3.7% contraction reported last month. The better-than-expected number is seen as a sign that the economic slump caused by the earthquake was not as deep as expected. An upward revision in inventories helped limit the depth of the downturn. Producer prices in the country rose for an eighth month in May, in line with the rise in energy and raw material costs. Prices companies pay for energy and unfinished goods rose 2.2% from a year earlier. On a more upbeat note, an index of the current business conditions, released by Japan's Cabinet Office, rose to 36 in May from 28.3 in April. However, readings under 50 indicate more pessimism than optimism.

Eurozone economy grows 0.8%The eurozone economy grew 0.8% in the first quarter, up from 0.3% in the previous three months, according to the European Union's statistics office Eurostat. In year-on-year terms, GDP growth was 2.5%, up from 1.9% in the last three months of 2010. Investment, as well as household and government consumption, drove growth in the first quarter. On the flip side, European industrial orders declined more than expected in March, led by a drop in demand for durable consumer goods. Orders fell 1.8% from February. The drop suggests that the eurozone recovery may struggle to gather strength after having expanded at a solid pace in the first quarter.

U.S. jobless claims riseInitial jobless claims unexpectedly increased last week, rising 1,000 to 427,000 in the week ended June 4. The numbers indicate that the labor market is still struggling.

Global corporate news

Toyota forecasts 31% profit drop

Toyota Motor forecast a 31% drop in annual profit after Japan's earthquake disrupted production and sales while the yen strengthened. The company said net income may fall to ¥280 billion in the 12 months ending March 31, 2012, from the¥408 billion that was expected by analysts.

J. Crew posts Q1 lossJ. Crew posted a loss for its fiscal first quarter because of costs related to its March buyout — the company was taken private in early March in a $3 billion acquisition by a group of investors. In addition, the apparel retailer's bottom line was hurt by markdowns and promotions.

The week ahead

• On Tuesday, June 14, the U.S. Department of Commerce releases retail sales for May and business inventories for April. The U.S. Department of Labor reports its Producer Price Index.
• Also on Tuesday, the Bank of Japan completes its two-day policy meeting.
• On Wednesday, June 15, the Labor Department releases its Consumer Price Index for May and the U.S. Federal Reserve Board releases its reports on industrial production.
• On Thursday, the Labor Department releases weekly jobless claims, and the Commerce Department reports data on housing starts for May.
• On Friday, the Thomson Reuters/University of Michigan index of consumer sentiment is released.

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.

Week ending June 3, 2011, in Review: Signs of economic slowdown weigh on markets

This past week was a sobering week of economic news as reports repeatedly signaled a slowing global economy. In the United States, the unemployment rate rose, job creation slowed, home prices dipped, and consumer confidence fell, all trends that reflect a struggle to maintain economic growth. On the brighter side globally, German jobless numbers shrank to a record low, prospects for a Greek bailout improved, and Canada’s economy grew at a healthy rate in the first quarter. However, numerous other indicators pointed downward, including a slowdown in manufacturing activity and in private sector growth within the eurozone.


Stocks were volatile throughout the week as investors reacted to the economic news, and tumbled after the disappointing Friday morning jobs report. Investors embraced the safety of U.S. Treasuries and that caused the yield on 10-year Treasury notes to dip below 3%. As recently as early April, the 10-year U.S. Treasury note yielded 3.60%.

Global economic news

U.S. jobs growth slows, unemployment up in MayFar fewer U.S. jobs were created last month than had been expected. Only 54,000 jobs were added to the U.S. economy for the month, according to the U.S. Department of Labor’s monthly jobs report. The consensus expectation among economists was for 160,000 new jobs to have been created. The unemployment rate rose to 9.1% from 9.0%. A slight decrease, to 8.9%, had been forecast. The report also revealed that in May 45% of unemployed Americans had been out of work for more than six months.


The numbers were disappointing, even after a preview had been provided by the private-sector jobs report released Wednesday by payroll services giant ADP, which found a growth of only 36,000 jobs in May in its survey, far fewer than had been expected. Weekly jobless claims also fell by 6,000 to a seasonally adjusted 422,000 during the week ended May 28. The four-week moving average of new claims dropped by 14,000 to 425,500. Despite the improvements, the numbers concern economists, because the weekly claims figure remains above 400,000, which is seen as a threshold indicator of the health of the job market.


Prospects improve for Greek bailout
Optimism rose this week that a new package of financial aid would be available for Greece, as Germany considered dropping a push to have Greek bonds rescheduled. For weeks, Germany had argued that private investors in Greek bonds should bear part of the burden of any new bailout package. Senior eurozone officials reportedly agreed in principle to a new three-year aid program for Greece. The agreement comes after Moody's downgraded Greek debt another three notches to "Caa1" from "B1" and warned that extended fiscal austerity would likely deepen and prolong recession. Moody's also cut the ratings of eight Greek banks on Friday.


Eurozone manufacturing growth wanesThe Markit Eurozone Manufacturing Purchasing Managers’ Index fell to 54.6, a seven-month low, from 58 in April. This was the index’s sharpest drop since November 2008. Additionally, the final May reading for the Markit Eurozone Composite Output Index, which measures private-sector business activity, fell to 55.8 in May from 57.8 in April.


U.S. home prices slide againU.S. home prices fell 4.2% in the first quarter, reaching their lowest levels since 2002, according to the Standard & Poor's/Case-Shiller Home Price Indices. Homebuyers were apparently affected by uncertain job prospects amid persistently high unemployment. A high level of foreclosures continues to weigh on home sales and prices.


Consumer confidence falls in the United StatesU.S. consumer confidence fell to a reading of 60.8, from 66.0 in April, according to the Conference Board consumer confidence index, amid pessimism about job prospects. The Chicago Institute for Supply Management recorded a sharp drop in its business barometer, to 56.6 in May from 67.6 in April. The May reading was the index’s lowest since November 2009.


Moody’s warns of possible U.S. debt downgradeIn a signal to the U.S. government, Moody’s Investors Service warned that it might lower the U.S. government’s credit rating if Congress fails to increase the nation’s debt limit in the coming weeks. The warning serves as a reminder of what is at stake if a budget stalemate persists. One consequence would be higher interest rates at a time when the U.S. economic recovery is showing renewed vulnerability.


Moody’s may downgrade Japan’s debt ratingMoody’s warned that it might lower its sovereign debt rating for Japan, as that country continues to struggle with deflation, flat economic growth, and high government debt. The tsunami and earthquake on March 11 added to existing problems, likely tipping Japan into a double-dip recession.


German jobless hits record lowGermany’s jobless rate reached a new low in May, with a 7% unemployment rate, down slightly from 7.1% in April, and the lowest unemployment rate since records were first kept in 1999.


Canadian economy rolls forwardCanada’s economy grew at a 3.9% annualized pace in the first quarter of 2011, more than twice the rate of that of growth in the United States, Canada’s largest trading partner. The Canadian economy benefited from businesses replenishing inventories and investing more to remain competitive. However, both consumer and government spending were weak.

Global corporate news

Japanese, U.S. auto sales reflect parts shortagesAuto sales declined in both the United States and Japan in May, hurt in part by the widespread shortage of parts after the severe disruptions caused by the March 11 earthquake and tsunami. In Japan, May auto sales fell by 38% from a year earlier. However, the decline in vehicle sales varied sharply from one carmaker to the next. Toyota Motor’s vehicle sales dropped 57%, Honda Motor fell 35%, and Nissan Motor’s sales slipped just 16%.


In the United States, vehicle sales slipped slightly. However, while Ford Motor and General Motors’ sales were fairly flat, Chrysler Group had a 10% rise in sales, and Hyundai Motor’s sales soared more than 20% as its fuel-efficient, relatively low-priced vehicles rose in popularity, and the Korean automaker benefited from shortages at Japanese firms Toyota and Honda.


American retailers post mixed resultsRetailers registered mixed results in May. Costco reported a 13% increase in May for stores open for more than a year, aided by gasoline sales and favorable foreign exchange rates. Macy’s also reported robust numbers, with strong results across the board, including upscale Bloomingdales stores and its online operations. Upscale retailers Saks and Nordstrom both reported a healthy increase in sales. Among retailers with disappointing results were Target, Victoria’s Secret, and JCPenney.


Groupon to file IPOSocial buying web site Groupon filed to go public with an IPO that could value the company at as much as $20 billion. On Thursday, the two-and-a-half-year-old e-commerce company, filed to go public, looking for raise up to $750 million. Groupon has grown rapidly but has incurred huge losses, and faces impending competition from Internet giants Google and Facebook. The IPO comes on the back of LinkedIn's successful IPO in late May.


Nokia issues profit warningNokia, the world’s largest mobile phone maker, warned that its core business might not earn a profit this quarter, as the Finnish company faces rigorous competition from rivals Apple and Google, whose phones — particularly smartphones — and operating platforms are surging in popularity.


Apple adds clarity by offering glimpse at iCloudApple said it would announce next week a new Internet service called iCloud that would allow people to gain access to music, photos, and videos on multiple devices, including computers and cell phones, without needing to sync those devices. Apple has signed contracts with major music labels to license their recordings. The pre-announcement was unusual for Apple, which usually remains tightlipped about new products until they are officially unveiled.

The week ahead

• GDP data for Japan and the European Union to be released Wednesday, June 8.
• U.S. jobless claims to be reported Thursday, June 9.
• Bloomberg Consumer Comfort Index to be released Thursday, June 9.
• German CPI to be reported on Friday, June 10.
• U.S. import and export prices to be reported Friday, June 10.

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--