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Following the steep market decline of the previous week, stocks made two successive attempts to rally on Monday and Tuesday, only to see those rallies reverse and fade. But on Wednesday, the rally not only held, but gathered strength into the close, propelling the S&P 500 to gain 3.9 percent on the day.

Market volatility increased dramatically. The VIX index, which had spiked above 50 last Friday after trading around 14 for an extended period, retreated back to 30 on Wednesday. In early trading on Thursday stocks were up strongly once again, as they were in Asia and Europe, and the VIX has retreated below 25.



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The weakness in global equity markets washed ashore in the U.S. and in Japan last week. Already heightened concerns about the pace of economic activity in China were exacerbated by a report that showed manufacturing activity there had slowed more than expected. Both the U.S. and Japanese markets had mostly avoided the downturns that had been underway since April in both emerging markets and the Eurozone (which accelerated since the August 11 yuan devaluation). But that all changed over the last three trading sessions of last week when the S&P 500 fell 6.0 percent while breaking below its 200 day moving average, and the Nikkei lost 5.4 percent.

The pain continued to be felt in emerging markets, as the MSCI EM index dropped another 3.6 percent over the same three day period, leaving it lower on the year by 8.2 percent and bringing the decline from its April peak to 18 percent. And it continued to be felt in the Eurozone, where the Stoxx 50 index dropped 7.1 percent between last Wednesday and Friday, extending its decline since the devaluation to 11.6 percent.



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Generally positive reports from the U.S. last week were overshadowed by international developments, which raised new questions about the strength of the global economy. At home, both retail sales and industrial production reports for July rebounded from the prior month, suggesting the U. S. economy began the third quarter on a positive note. These indicators followed the solid July employment report from the previous week. Stocks responded positively, as the S&P 500 climbed 0.7 percent on the week. The gains might have been stronger if not for the heightened concerns about the pace of economic activity in China and the unanticipated devaluation of its currency.



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The July payroll report was strong enough to raise the odds of a September Fed rate increase above 50 percent. The report was the first of two that the Federal Open Markets Committee (FOMC) will see before it meets next month and showed a continuation of steady job gains, but little in terms of wage gains. One particular bright spot in the report was the increase in the length of the average work week by 0.1 hours. While that may not sound like much, it is the equivalent of several hundred thousand additional jobs in terms of income generation.

Although the 215,000 jobs created were slightly below expectations of 225,000, revisions to the two prior months (totaling 14,000) made up the shortfall. Year-to-date the U.S. economy has now generated an average of 211,000 new non-farm jobs per month, including an average of 235,000 over the past three months. The unemployment rate has fallen from 5.6 percent last December to 5.3 percent, the same as in June. The underemployment rate fell to 10.4 percent from 10.5 percent in July and down from 11.2 in December. This rate was as high as 17.1 percent in 2009.



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“No man is an island.” This famous phrase by seventeenth century English poet John Donne is equally applicable to twenty-first century economies. The convergence of global trade and the twenty-four hour news cycle has amplified the influence of events in foreign markets on our own and others around the globe. This phenomenon is certainly visible in the impact of the economic slowdown and stock market decline in China, and the cumulative psychological impact of the ongoing crisis in Greece.



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It comes as little surprise that Chinese stocks have resumed their rout in dramatic fashion, despite the government’s best efforts to stabilize prices. On Monday, the Shanghai Composite Index plunged 8.5 percent, resuming the selloff that began back in June. The price decline had been stopped for the past three weeks by a series of extraordinary measures that included halted trading, forced buying from brokerages and the cessation of IPOs.

But, as demonstrated by 11th century Scandinavian King Canute and the tide, there are limits to the power of official decree. On Friday, the China Flash PMI showed a sharp decline in manufacturing activity, which was followed by a report of falling industrial profits on Monday. After rising 152 percent for the past year through June 12, the Shanghai Composite fell 32 percent through July 8. The index then began to rise following the government’s intervention, eventually climbing 18 percent through last Thursday.



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MINNEAPOLIS – July 22, 2015 – The Board of Directors of Ameriprise Financial, Inc. (NYSE: AMP) has declared a quarterly cash dividend of $0.67 per common share payable on August 14, 2015 to shareholders of record at the close of business on August 3, 2015.
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China’s desire to be seen as a world economic power has been dealt a series of setbacks recently, largely of its own doing. The first setback occurred on June 9, when the MSCI global index declined to include China’s domestically listed shares in its emerging markets indices to the surprise of many, including Chinese authorities who thought they had done enough to satisfy MSCI’s criteria. In making its decision, MSCI pointed to investor concerns over the quota system by which institutional access to the market is determined, limited capital mobility and share ownership legal issues.
 


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Developments in Greece evolved rapidly over the weekend. In the early morning hours on Saturday, Greek Prime Minister Tsipras called for a national referendum, to be held on July 5, to determine if his government should accept the conditions offered by its creditors for an extension of its existing financial bailout agreement.

However, since the existing bailout agreement expires on June 30, Greece needed a five day extension in order to meet its financial obligations due at month end, including 1.5 billion euros due to the International Monetary Fund. European Union finance ministers refused to grant an extension, turning their focus instead on containing the fallout from a possible Greek default, all but ensuring that Greece will miss the scheduled payments.

 



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