Global Markets Weekly Update: April 22, 2022
U.S.
The major U.S. equity indexes ended the week lower. The Russell 1000 Growth Index stocks gave up more ground than its value counterpart, while the large-cap S&P 500 Index posted steeper losses than the S&P SmallCap 600 Index and the S&P MidCap 400 Index. Within the S&P 500, the communication services sector pulled back the most. Shares of Netflix tumbled more than 35% during the week, as the company reported disappointing quarterly results that were headlined by a sequential decline in its global subscriber rolls. Only the consumer staples sector gained ground.
Purchasing managers’ indexes (PMIs) signal expansion, but inflation poses challenges
Preliminary data for the S&P Global U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, suggested that growth in business activity slowed in April but remained strong. The widely watched economic indicator came in at 55.1 compared with 57.7 in March. (PMI readings greater than 50 indicate an expansion in business activity.)
The S&P Global U.S. Services PMI hit 54.7 in April, down from 58.0 in March. The survey, however, showed that manufacturing activity expanded. New orders for manufacturing and services businesses suggested that demand remained strong as restrictions related to the coronavirus pandemic loosened. However, both segments of the economy appeared to contend with rising labor and input costs by signaling the steepest uptick in output charges on record.
Fed policymakers strike hawkish tone in public comments
James Bullard, president of the Federal Reserve Bank of St. Louis, reiterated his view that, to try to curb elevated inflation, the central bank should move “expeditiously” to bring interest rates to neutral or to a level that neither stimulates nor impedes economic growth. Bullard indicated that a rate increase of as much as 75 basis points (0.75 percentage points) could be up for discussion, although he also said that a move of this magnitude would not be his base case and suggested that the economy should expand this year and in 2023.
At an event hosted by the International Monetary Fund (IMF), Fed Chair Jerome Powell said a 50-basis-point rate increase could be “on the table” for the May 3‒4 policy meeting and stated that “it is appropriate…to be moving a little more quickly.” While acknowledging the challenges of engineering a soft landing, Powell disputed fears that the Fed’s rate-hiking cycle would risk pushing the economy into recession, citing the historically strong labor market.
Meaningful increases in short- and intermediate-term U.S. Treasury rates resulted in a flatter yield curve. (Bond prices and yields move in opposite directions.) According to T. Rowe Price traders, these moves partly reflected investors’ growing expectations for the Fed to hike its benchmark interest rate by 50 basis points at each of its next three policy meetings.
Investment-grade corporate bonds weaken; municipals firmly negative
Investment-grade corporate bonds weakened against a less supportive technical backdrop. New issuance exceeded weekly expectations, and this uptick in new deals, which generally offered attractive concessions, appeared to weigh on demand for bonds in the secondary market, according to T. Rowe Price traders. In the high yield bond market, our traders noted a bias toward quality, with BB rated bonds outperforming the CCC tier.
The broad municipal bond market delivered firmly negative returns through most of the week and underperformed U.S. Treasuries by a wide margin. T. Rowe Price traders reported that additional outflows industrywide forced municipal bond portfolios to sell bonds—particularly those with short maturities—to meet redemptions.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
33,811.40 |
-639.83 |
-6.95% |
S&P 500 |
4,271.78 |
-120.81 |
-10.37% |
Nasdaq Composite |
12,839.29 |
-511.79 |
-17.93% |
S&P MidCap 400 |
2,583.21 |
-45.40 |
-9.11% |
Russell 2000 |
1,940.66 |
-64.32 |
-13.57% |
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.
Europe
Shares in Europe fell amid ongoing concerns about the war in Ukraine and increased hawkishness among central bank policymakers. In local currency terms, the pan-European STOXX Europe 600 Index ended 1.42% lower. The main market indexes were mixed. Germany’s DAX Index and France’s CAC 40 Index were little changed, but Italy’s FTSE MIB Index lost 2.34%. The UK’s FTSE 100 Index pulled back 1.24%.
Core eurozone bond yields ended higher, as hawkish comments from policymakers at key central banks drove a broad sell-off in high-quality government bonds. Peripheral eurozone and UK government bond yields largely tracked core markets.
ECB’s Lagarde repeats stimulus to end in Q3, but hawks back tightening in July
Speaking at the annual IMF/World Bank meeting, European Central Bank (ECB) President Christine Lagarde reiterated that its asset purchase program will conclude in the third quarter and that incoming data will determine interest rate moves. Earlier, hawks on the central bank's governing council—Bundesbank Governor Joachim Nagel and Latvia’s central bank Governor Martins Kazaks—appeared to strengthen their stance, pressing for an early end to stimulus in July, followed by interest rate increases. ECB Vice President Luis de Guindos, previously seen as a dove, suggested that a rate increase could occur as early as July.
Eurozone PMI unexpectedly rises
Business activity in the eurozone unexpectedly accelerated in April, driven by quicker growth in the services sector as economies emerged from coronavirus lockdowns, according to a survey of purchasing managers. The S&P Global Flash Eurozone PMI Composite Output Index climbed to 55.8 in April from 54.9 in March, defying analysts’ forecasts for a fall. Manufacturing activity, however, appeared close to stalling due to ongoing supply constraints, rising prices, and disruptions related to Russia’s invasion of Ukraine.
UK retail sales fall, business activity slows, confidence drops
The latest economic data reinforced a picture of stuttering economic growth in the UK. Business activity grew at the slowest rate in three months in April, as record inflation pressures and the Ukraine conflict curtailed orders in the services sector. The S&P Global Flash UK PMI Composite Output Index dropped to 57.6 from 60.9 in March. Retail sales volumes fell by a worse-than-expected 1.4% in March from February, according to the UK Office for National Statistics. Market research firm GfK said consumer confidence slumped in April, approaching its lowest level since the data series began 50 years ago.
Macron leads in French election, polls show
French President Emmanuel Macron appeared to cement his lead over National Rally Party leader Marine Le Pen ahead of the decisive second round of the presidential election on April 24, according to opinion polls. The German chancellor and the prime ministers of Spain and Portugal urged a vote in favor of Macron in a joint article in the Le Monde newspaper.
Japan
Japan’s stock markets rose modestly over the week, with the Nikkei 225 Index returning 0.04%, and the broader TOPIX Index gaining 0.47%. Consumer price inflation continued to lag other major developed economies—the core consumer price index was up 0.8% year on year in March—and remained a key factor behind the Bank of Japan’s (BoJ’s) continued pursuit of its ultra-loose monetary policy.
With the yen hovering around a two-decade low against the U.S. dollar, BoJ Governor Haruhiko Kuroda said that the negative effects of a weak currency, including the increased difficulty in companies’ business planning, need to be taken into account. The yen finished the week at around JPY 128.49 against the U.S. dollar compared with the previous week’s JPY 126.44. The BoJ bought Japanese government bonds (JGBs) to defend the upper limit of its interest rate target range and announced fresh bond-buying plans. The yield on the 10-year JGB finished the period broadly unchanged at 0.24%.
Kuroda warns of risks to business of weak yen
BoJ Governor Kuroda offered his latest assessment of the recent moves in the yen, describing them as “quite sharp” and suggesting that they could hurt companies’ business plans. However, he reiterated that, overall, a weak yen benefits the economy by boosting the value of companies’ overseas earnings. Kuroda also reaffirmed the central bank’s commitment to its massive stimulus program to support the still-fragile economic recovery.
During the week, Finance Minister Shunichi Suzuki discussed recent currency developments with U.S. Treasury Secretary Janet Yellen, with the two asserting that the current Group of Seven (G-7) foreign exchange agreements should be upheld. These state that foreign exchange moves should be determined by the market, although excessive movements can have a negative impact.
Cabinet Office upgrades its assessment of the economy; private sector activity expands
In its April Economic Report, the Cabinet Office upgraded its assessment, stating that the Japanese economy is showing signs of picking up as the severe coronavirus situation is easing. It pointed to the recent uptick in private consumption, as well as increased momentum in business investment and industrial production.
April flash PMI data showed an expansion in services sector activity and a rise in output levels in the manufacturing sector. Cost pressures posed a headwind across both segments, with firms passing on these price rises to clients at a steeper rate. Business confidence eased, as concerns about the war in Ukraine and the impact of strict coronavirus lockdowns in China on supply chains, costs, and demand weighed on sentiment.
China
Chinese markets slid as investors worried about the economic fallout from coronavirus lockdowns after officials said tough restrictions would remain in place. The CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, fell 4.2% this week in its worst five-day performance since mid-March, according to Bloomberg.
Fed Chair Powell’s comments that a half-point U.S. rate hike was “on the table” when the central bank meets in May pressured China’s bonds and currency. The yield on the 10-year Chinese government bond rose to 2.88% from 2.818% a week ago, while the yuan struck a seven-month low of 6.47 against the U.S. dollar, down 1.8% for the week.
Foreign investors sold a net USD 1.01 billion worth of Chinese stocks so far in April via the Hong Kong Stock Connect program, Reuters reported. The latest outflow comes after foreigners sold roughly USD 7.1 billion in March, which was the largest outflow in nearly two years. The outflows have stoked official concern, with the China Securities Regulatory Commission reportedly calling upon the country’s National Social Security Fund, banks, and insurers to boost their equity investments, Bloomberg reported.
PBOC keeps interest rates steady
The People’s Bank of China (PBOC) kept interest rates steady, leaving the one-year loan prime rate at 3.70% and the five-year rate at 4.60%. Economists had expected the central bank to modestly trim both rates, which serve as China’s de facto benchmark lending costs. PBOC Governor Yi Gang pledged to keep policy accommodative to support China’s slowing economy, comments that raised expectations for further easing measures.
Stronger-than-expected economic growth
China’s economy grew at a stronger-than-expected 4.8% pace in the year’s first quarter from a year ago, up from 4.0% in last year’s fourth quarter. On a quarter-on-quarter basis, the economy expanded 1.3% in the first three months of the year, slowing from the previous quarter’s 1.6% increase.
The IMF cut China’s 2022 growth forecast to 4.4% from 4.8% in its latest outlook, the second downgrade for the country in three months. The IMF also warned that China’s economy could slow more than currently projected and have supply chain consequences for Asia and beyond.
Other Key Markets
South Africa
South African stocks, as measured by the FTSE/JSE All Share Index, slipped roughly 1.5%. The rand and other South African assets struggled amid expectations that the U.S. Federal Reserve would pursue a more aggressive pace of interest rate increases.
Power outages also weighed on investor sentiment. Some areas were without electricity at times through late Friday because of equipment failures and the state-owned utility’s decision to voluntarily cut power to reduce stress on the grid.
Chile
Chilean stocks, as measured by the S&P IPSA Index, dipped about 1.3%. Early in the week, the lower house of Chile’s legislature debated—and ultimately voted against—two competing pension withdrawal proposals. The first was a bill presented by Congress that merged elements from seven other proposals and would have required at least 60% of deputies’ votes to be approved. The second was a counterproposal from the government that was more restrictive and would have required only a simple majority to pass.
The rejection of the former was not surprising to T. Rowe Price emerging markets sovereign analyst Aaron Gifford, given its higher voting threshold and the failure of a different pension withdrawal bill late last year. However, the vote against the government’s counterproposal surprised Gifford, who notes that enthusiasm among deputies for the legislation was limited. While the government may face continued pressure to find alternative ways to provide liquidity to households, critics of the new pension withdrawal legislation contend that the bills could have weakened the local capital market, reduced the population’s long-term savings, and boosted inflation.
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