WEEKLY MARKET UPDATE

• Worries about the Euro area debt crisis have not been quelled as Spanish and Italian
bond yields are rising once again. The long-term problem is infl exible labor markets,
particularly sky-high youth unemployment.
• Equity markets sold off mid-week as the minutes from the last Federal Reserve (Fed)
meeting seemed to indicate there was a higher bar to more monetary easing than
expected. Chairman Ben Bernanke clearly thinks there is enough slack in the labor
force to warrant keeping interest rates ultra-low for the foreseeable future.
• The U.S. payroll report was disappointing with only 120,000 new jobs in March.
Much of the drop is likely payback from spurious statistical seasonal adjustment that
overstated activity during the winter. U.S. growth should pick up in the second half.
• In total, 17 of the 25 countries that report manufacturing Purchasing Managers’
Index (PMIs) had a reading above 50, indicating expansion (using the logistics
federation Chinese PMI). Of the eight with readings below 50 that show
contraction, six were in Europe.
• The U.S. manufacturing PMI was up a point to 53.4; the services PMI cooled to 56.0
from 57.3, bringing the composite PMI (a sector weighted average) down to 55.6
in March, from 56.5 in February. This is consistent with our view of softer growth in
the fi rst quarter.
• China’s economic data show no signs of further deterioration: manufacturing PMIs
hover around 50; the March service PMI ticked up to 58; and the Soufun 100-city
survey of house prices show a modest 0.3% decline in March with prices about the
same as the year before.
• The China Securities Regulatory Commission (CSRC) raised the quota for foreign
institutional investors to invest in Chinese fi nancial securities from $30 billion to $80
billion. This is another small step to opening fi nancial markets.