Week in Review: Stocks gain amid Greek bailout hopes and strong economic news

For the week ended March 12, 2010

* Higher-than-expected retail sales boost hopes for stronger U.S. growth
* BMW profits up 36%
* Greeks go on strike
* European production grows
* Brazil’s economy expands 2%

Stocks rose around the world this week in response to strong U.S. economic data and increased speculation that the European Union would help bail out Greece. The Standard & Poor’s 500 Stock Index rose to its highest level since October 2008, and on Friday was up 74% from its low of March 9, 2009.

U.S. economic news

Strong sales boost growth expectations
In a sign that consumers are spending more, U.S. retail sales unexpectedly rose in February; purchases increased 0.3%, the fourth gain in the past five months. That rise along with news that fewer Americans filed first-time claims for jobless benefits last week, helped power a rise in U.S. stocks.

U.S. household total net worth increased 1.3% in the fourth quarter. For 2009 as a whole, it rose 5.4%. It was the third quarter in a row that net worth climbed; a large amount of that increase came from a drop in household debt, which fell by 1.7% in 2009, the first annual drop since the record-keeping began in 1945.

The U.S. trade deficit unexpectedly narrowed 6.6% in January as imports and exports both declined. Americans imported the fewest barrels of crude oil in a decade and demand for automobiles dropped.

U.S. and global corporate news

BP buys Devon Assets
BP announced on Thursday that it would pay Devon $7 billion in cash for its assets in Brazil, Azerbaijan, and the deep-water part of the Gulf of Mexico. It also will sell Devon a 50% stake in its Kirby oil-sands interests in Alberta, Canada, for $500 million. The two companies will form a joint venture to develop the property.

BMW profits up 36%
BMW reported a 36% increase in 2009 net profit but said it is cautiously optimistic for 2010. That increase came in a year when luxury carmakers experienced a steep downturn.

Global economic news

Global confidence drops
Confidence in the world economy declined in March for the second month amid concern that the fallout from the Greek business crisis would undermine the global recovery. The Bloomberg Professional Global Confidence Index dropped to 53.8 from 54.9 in February. While this is the eighth month that this reading has been above 50, an indication that there are more optimists than pessimists, sentiment still fell in Europe.

Greeks strike
Greece’s pledges of budget cuts sparked nationwide strikes this week. Greek hospitals, airports, and schools were shut and police sparred with protesters as unions staged the second general strike this year protesting the budget cuts.

European production increases more than expected
Despite the drop in confidence, signs of stronger growth emerged in Europe. In January European industrial output rose 1.7%, the most in two decades, as economic growth prompted companies to boost the production of goods.

China’s inflation soars
China’s inflation reached a 16-month high, rising 2.7% in February from a year earlier. Production rose 20.7% in the first two months of 2010. The rapid growth in China’s bank lending and investment spending slowed in February. That slowing is seen as a sign that the government’s gradual withdrawal of stimulus policies in recent months is starting to have an effect on the real economy.

Japan shows weaker-than-expected growth
Revised data show that Japan’s fourth-quarter growth was weaker than previously thought and that the economy actually contracted in the third quarter. The Japanese cabinet office cut the October-to-December gross domestic product growth rate to 3.8% from the 4.6% announced last month. The government attributed the decline to a drop in private-sector inventory and weaker-than-expected business and government spending.

Brazil’s expansion sparks rate-increase speculation
Brazil’s economy expanded 2% in the last quarter of 2009 from the previous three months. That increase has upped speculation that the central bank will increase the benchmark interest rate at its next meeting.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times.

Arturo E. Miranda C.
VP International Sales
Thales Securities