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Global Markets Weekly Update: April 06 2023
U.S.
Benchmarks end mostly lower in light trading
The major benchmarks were mostly lower over a holiday-shortened week that T. Rowe Price traders noted was characterized by light and choppy trading. U.S. markets were shuttered on Friday, along with most of the other markets in the Americas, in observance of the Good Friday holiday, while Passover started on Wednesday evening. Our traders noted that investors also seemed to take a pause following the previous week’s quarter-end “window dressing,” in which some institutional investors adjusted their holdings in advance of their quarterly public disclosure.
With markets closed on Friday, investors were unable to react to the Labor Department’s closely watched nonfarm payrolls report for March, but several other important economic releases appeared to sway sentiment. On Monday, the Institute for Supply Management’s (ISM’s) gauge of March factory activity fell back to a nearly three-year low, reversing a modest uptick in February. The ISM’s services sector gauge, released two days later, indicated that the services sector was still expanding, but at a significantly slower-than-expected pace.
Signs of cooling labor market
Recession concerns seemed to deepen—and hopes for lower interest rates appeared to grow—when the Labor Department reported on Tuesday that job openings declined much more than expected in February, falling to levels (9.9 million) last seen in May 2021. The number of people quitting their jobs rose from 3.9 million to 4.0 million, however. Some economists believe that the number of people leaving their jobs voluntarily is a more reliable indicator of the overall health of the labor market.
Payroll processor ADP’s tally of private sector jobs, released Wednesday, indicated that the job market continued to expand in March, but at a slower pace. “Employers are pulling back from a year of strong hiring,” ADP’s chief economist noted, “and pay growth, after a three-month plateau, is inching down.”
T. Rowe Price’s traders noted that downbeat statements from a Federal Reserve official and a leading bank executive also weighed on sentiment. Cleveland Fed President Loretta Mester stated at an economic conference that she expected the federal funds rate to go above 5% and stay there, while, in a letter to shareholders, JPMorgan Chase Chairman and CEO Jamie Dimon warned that “the [banking] crisis is not yet over” and that “there will be repercussions from it for years to come.”
Weak data and limited issuance support bond prices
The weak economic data pushed U.S. Treasury yields lower. (Bond prices and yields move in opposite directions.) According to our traders, technical conditions characterized by relatively light dealer inventories and below-average supply provided an additional boost to the municipal bond market.
Our traders noted that investment-grade corporate bonds were supported by relatively limited new issuance, although performance was mixed across sectors. Bonds in the energy sector were early outperformers on news of a production cut by OPEC and other oil-producing nations, while U.S. and Yankee banks (banks domiciled in the U.S. but with most of their operations elsewhere) lagged the broader market.
The high yield bond market was mainly focused on issuance, according to our traders, as several new deals were announced after a very quiet month of March for the primary calendar. Most new issues were met with solid demand. Energy names traded higher following news of the proposed OPEC+ oil supply cuts.
Our bank loan traders reported that the loan market saw steady demand, while some sellers opportunistically reduced their holdings of higher dollar loans. They noted, however, that buyers were somewhat selective given the recent price appreciation, especially among higher-quality loans. Lower dollar-price loans from private companies that reported over the week received more interest from investors.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
33,485.29 |
211.14 |
1.02% |
S&P 500 |
4,105.02 |
-4.29 |
6.92% |
Nasdaq Composite |
12,087.96 |
-133.95 |
15.49% |
S&P MidCap 400 |
2,447.09 |
-65.07 |
0.69% |
Russell 2000 |
1,754.46 |
-48.02 |
-0.39% |
This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Frank Russell Company (Russell) is the source and owner of the Russell index data contained or reflected in these materials and all trademarks and copyrights related thereto. Russell® is a registered trademark of Russell. Russell is not responsible for the formatting or configuration of these materials or for any inaccuracy in T. Rowe Price’s presentation thereof.
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Europe
Shares in Europe rose as fears of a banking crisis abated. In local currency terms, the pan-European STOXX Europe 600 Index finished the five days ended April 6 with a 0.90% gain. Major stock indexes were mixed.
ECB’s Lagarde, de Guindos, Lane hint at more rate hikes; others think rates are near peak
European Central Bank (ECB) President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane indicated that inflationary pressures would require further interest rate hikes. While several other policymakers, including Bank of France Governor François Villeroy de Galhau, Bank of Lithuania Governor Gediminas Šimkus, and Bank of Greece Governor Yannis Stournaras, echoed the view that rates might rise, they also said they believed rates were nearing a peak.
EU house prices fall for first time in 8 years; producer prices drop for fifth month running
European Union home prices fell in the fourth quarter of last year for the first time since 2015, dropping by a record amount, Eurostat data showed. House prices declined 1.5% sequentially, as higher interest rates curbed demand for houses. Meanwhile, eurozone producer prices fell for a fifth consecutive month and by more than expected in February, due mostly to subsiding energy prices.
Strong demand for heavy vehicles and autos fueled an unexpected monthly increase in Germany’s industrial production, which ticked up 2.0% in February. Manufacturing orders, meanwhile, surged 4.8%. A marked pickup in industrial activity and in business confidence since the start of the year prompted Germany’s economics ministry to say signs of an economic recovery were now evident.
BoE’s Pill indicates May rate decision could be a close call
Bank of England (BoE) Chief Economist Huw Pill indicated that policymakers face a close decision on whether to raise interest rates for a 12th consecutive time in May, a sign that monetary policy tightening in the UK might be near an end. Speaking in Geneva, he said: “On balance, the onus remains on ensuring enough monetary tightening is delivered to see the job through and sustainably return inflation to target.” He added, however, that policymakers also need to remain vigilant on tightening financial conditions and any dislocation to credit markets that might influence the inflation outlook.
Japan
Japanese stocks declined over the week, with the Nikkei 225 Index falling 1.9% and the broader TOPIX Index down 2.1% through Thursday’s trading. Data releases suggesting that the U.S. economy may be slowing raised some concerns about global recessionary conditions. Investors also sought to digest the potential impact of Japan’s recent announcement of export restrictions on certain types of semiconductor manufacturing equipment, particularly on the country’s relations with China, its largest trading partner.
Speculation continued about a potential change in the Bank of Japan’s (BoJ’s) ultra-loose monetary policy under incoming Governor Kazuo Ueda, who assumes the post on April 9. A former BoJ official suggested during the week that the central bank could tweak its yield curve control framework without prior warning. Against this backdrop, the yield on the 10-year Japanese government bond rose to 0.46%, from 0.32% at the end of the previous week, tracking the rise in global bond yields. The yen strengthened to about JPY 131.3 against the U.S. dollar, from around 132.8 the prior week, amid dollar weakness as sluggish U.S. data increased the likelihood that the Fed could moderate the pace of its monetary policy tightening.
Sentiment among big manufacturers deteriorated, according to survey
The BoJ’s closely watched Tankan survey showed a deterioration in business sentiment among Japan’s big manufacturers in the first quarter, the fifth straight decline. Higher materials costs due to yen weakness and elevated resource prices weighed on profits, exacerbated by an anticipated weakening in overseas demand. Conversely, big nonmanufacturing enterprises benefited from rising inbound consumption.
G7 economies agree to cooperate on technology export controls
Trade ministers of the Group of Seven (G7) advanced economies, which includes Japan, agreed during the week to cooperate on imposing export controls for some leading-edge technologies to address the potential misuse of those technologies. They also emphasized the need to work more closely with non-G7 partners to build resilient supply chain networks.
The U.S. imposed export restrictions in October on chipmaking tools to China and called on other key suppliers, including Japan and the Netherlands, to follow suit. Japan recently announced plans to restrict exports of certain types of semiconductor manufacturing equipment, although it does not have one specific country in mind with these measures.
China
Chinese stocks advanced in a holiday-shortened week as a recovery in services activity and the property sector bolstered investor sentiment. The Shanghai Stock Exchange Index gained 1.22% and the blue chip CSI 300 rose 1.13% in local currency terms. Markets in Hong Kong and China were closed on Wednesday in observance of the Qingming festival, also known as Tomb Sweeping Day, when Chinese people honor their ancestors by cleaning and placing offerings on their tombs.
In economic news, the private Caixin/S&P Global survey of services activity rose to 57.8 in March, up from February’s 55.0, the third consecutive monthly expansion after Beijing lifted pandemic restrictions in December. However, the survey’s manufacturing gauge slowed to 50.0 in March from an eight-month high in February amid tepid global demand. The weaker-than-expected Caixin/S&P manufacturing data matched the prior week’s official manufacturing Purchasing Managers’ Index, which also eased from February’s level but remained in expansion. Index readings above 50 indicate growth from the previous month.
Property sector shows signs of recovery
China's new home sales rose 55.7% in March, up from 31.9% in February, according to a private survey of 14 cities, Reuters reported. Increased demand was attributed to an array of stimulus measures that China’s central and local governments rolled out at the end of 2022 to bolster homebuying sentiment. While sales growth is expected to improve for the rest of 2023, many analysts believe that the longer-term outlook for China’s property market remains subdued.
China Evergrande Group, once the country’s largest real estate developer and the highest-profile casualty of the liquidity crisis hitting the property sector, signed a deal with creditors to restructure most of its outstanding debt. Evergrande was declared to be in default in late 2021, marking the start of a nationwide property crisis that periodically shook international financial markets. Evergrande’s debt restructuring, which still faces months of negotiations with creditors, could serve as a reference for other Chinese developers in default that are trying to restructure their debt.
Other Key Markets
Chile
On Tuesday, the Chilean central bank kept its monetary policy interest rate at 11.25%. The decision, which was unanimous among policymakers, was in line with market expectations. However, the tone of the post-meeting statement was hawkish. Policymakers noted that the economy “is adjusting more slowly than expected” and that “inflation is taking longer to come down.” They also cautioned that the process of inflation converging to the central bank’s 3% target “will take longer than (they) expected in December.”
On Wednesday, the central bank released its quarterly Monetary Policy Report. In the report, policymakers confirmed that inflation remains very high and noted that core consumer price index inflation has been around 11% for some time. Nevertheless, they project that inflation will converge to the 3% target in the “latter part of 2024.” As for the economy, central bank officials believe that it has been unable to “reduce the impacts of excess spending that accumulated in previous years.” In fact, they upgraded their gross domestic product forecast for 2023, though they noted that the economy will be affected by “lower external demand and tighter global financial conditions” in the period ahead.
Brazil
Since the beginning of the year, President Luiz Inácio Lula da Silva (Lula) and some members of his administration have criticized the central bank’s tight monetary stance under the leadership of Roberto Campos Neto as a hindrance to economic growth. While he has largely refrained from responding to criticism in public, Campos Neto appeared on a local news program on one occasion earlier this year and, while answering questions from journalists, seemed to be trying to make peace with Lula. For example, he acknowledged Lula’s democratic mandate, noted that even central bank officials don’t like to have such high interest rates, and emphasized the central bank’s efforts to increase financial inclusion. Nevertheless, Campos Neto maintained a strong defense of the central bank’s autonomy and technocratic monetary policy.
Earlier in the week, the central bank governor may have made another conciliatory gesture to the president. As reported by Reuters, Campos Neto said that the fiscal efforts made thus far this year by Lula’s government are positive and have eliminated the potential for the country’s debt situation to become “more uncoordinated.” At the same time, Campos Neto made it clear that the country’s fiscal standing and interest rates do not have a “mechanical relationship.” In addition, he affirmed the central bank’s independence by clarifying that policymakers’ interest rate discussions and decisions are technical in nature, not political.
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