Global Markets Weekly Update: March 11, 2022
U.S.
Nasdaq moves into bear market territory
Stocks moved lower over another week of extreme volatility provoked by the Russian invasion of Ukraine. At its intraday low for the week on Tuesday, the Nasdaq Composite fell to a level that was nearly 22% below its recent peak, more than the 20% threshold that technically defines a bear market. At its low point, the S&P 500 Index was roughly 14% off its high, still in correction territory. Consumer staples stocks underperformed as Coca-Cola, PepsiCo, and other food and consumer products makers announced that they were suspending business in Russia.
On Monday, over 19 billion shares traded hands on U.S. markets—the most since the meme-related GameStop short squeeze in January 2021, according to T. Rowe Price traders. Our traders also noted that technical factors, such as the need to cover short positions or meet margin calls, appeared to amplify the indexes’ swings. (Short positions involve selling borrowed shares in the hopes of buying them back at a lower price.)
Surging commodity prices dominate headlines
A surge in commodity prices as a result of the Russian-Ukrainian conflict seemed to dominate sentiment during the week. The escalation was most visible to consumers in oil prices, which reached USD 139 per barrel—a 14-year high—in international markets on Monday amid reports that the Biden administration was weighing a possible embargo of Russian crude oil.
On Tuesday, President Joe Biden announced that the U.S. was cutting off all imports of Russian oil and gas and told Americans to be prepared for higher gas prices. European nations, which are much more reliant on Russian energy imports, announced less stringent measures (see below). Oil prices fell back some at midweek after a United Arab Emirates official stated that the country was willing to increase production substantially, although the country’s energy minister later said it would stick with existing OPEC production plans.
Turmoil in the market for nickel, a component of stainless steel and other alloys, also seemed to worry investors. Russia’s threat to ban nickel exports—it supplies over 9% of the world’s supply—caused prices to double before trading was halted on the London Metal Exchange. The unprecedented rise threatened the ability of the world’s largest producer, China’s Tsingshan Holding Group, to meet margin calls on its short positions. Some better news came in the grains market, as shipping resumed in the Black Sea. Trading in wheat futures on the Chicago Mercantile Exchange was halted after a report that global stockpiles would remain substantial even after the cutoff of exports from Russia and Ukraine.
Inflation worries trump strong labor market for consumers
Much of the week’s economic data came in roughly in line with expectations. The consumer price index matched market expectations, rising 0.8% in February and 7.9% over the previous 12 months, the most since January 1982. Weekly jobless claims came in slightly above expectations, at 227,000, but remained at low levels. January job openings beat expectations at 11.26 million, as declines in accommodation and food services in the face of the omicron variant of the coronavirus were offset in other areas. Americans remained pessimistic about their financial prospects, however. The University of Michigan’s preliminary gauge of consumer sentiment in March fell more than expected to 59.7, a new decade low. The survey’s chief researcher pointed to inflation worries exacerbated by the Russian invasion of Ukraine as the main factor in the decline.
U.S. Treasury yields increased amid continued inflation concerns and some renewed hopes surrounding Russia-Ukraine negotiations. (Bond prices and yields move in opposite directions.) T. Rowe Price traders indicated that supply factors also weighed on Treasuries, including heavier corporate borrowing and possible large-scale debt issuance by the European Union for energy and defense spending. On Monday, the spread between 2- and 10-year Treasury yields reached its tightest level since March 2020, but it began to widen as the week progressed. Tight spreads are often considered an indicator—although not an infallible one—of a coming recession.
Tax-exempt municipal bonds outperformed Treasuries but continued to sell off amid rising interest rates and steady outflows from municipal bond portfolios industrywide. Our municipal traders observed that risk appetite began to improve late Thursday, however, and the largest deal of the week, California’s USD 2.2 billion general obligation debt offering, was well received.
High yield deals pulled from market
Investment-grade corporate bonds traded lower amid heavy new issuance. The combination of an active primary calendar and elevated new issue concessions on some deals contributed to the weakness seen in the secondary market, according to our traders. Conversely, new issuance in the high yield market was very light as a few new deals that had been expected to come to the market were pulled due to the broad risk-off sentiment. The leveraged loan market was weaker as broader risk assets continued to sell off on the back of the Russian invasion of Ukraine.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
32,944.19 |
-670.61 |
-9.34% |
S&P 500 |
4,204.31 |
-124.56 |
-11.79% |
Nasdaq Composite |
12,843.81 |
-469.63 |
-17.90% |
S&P MidCap 400 |
2,570.76 |
-44.71 |
-9.54% |
Russell 2000 |
1,979.67 |
-21.22 |
-11.83% |
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 rebounded in a volatile week of trading, perhaps reflecting hopes that a diplomatic solution to the Russia-Ukraine conflict might emerge. In local currency terms, the pan-European STOXX Europe 600 Index ended 2.23% higher. Germany’s DAX Index advanced 4.07%, while Italy’s FTSE MIB Index, which dropped briefly into bear market territory earlier in the week, tacked on 2.57%. France’s CAC 40 Index climbed 3.28%. The UK’s FTSE 100 Index rose 2.41%.
Core eurozone bond yields climbed after inflation expectations strengthened and the European Central Bank (ECB) surprised markets with the announcement that it could wind up its bond-buying program sooner than expected. Bonds in the eurozone’s periphery, some of the biggest benefactors of the ECB’s monetary stimulus, also saw yields shoot up. UK gilt yields rose as well, buoyed by rising inflation expectations.
ECB to scale back asset purchases as Ukraine conflict boosts inflation expectations
The ECB indicated that inflation expectations appeared to be driven higher by the Russia-Ukraine conflict and announced that it could end its asset purchase program in the third quarter, rather than at the end of the year. “If the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases, the governing council will conclude net purchases under the APP [asset purchase program] in the third quarter,” the ECB said. The bank also said it could revise the schedule to reflect how the macroeconomic situation evolves. Regarding the timing of a rate increase, ECB President Christine Lagarde stressed that the ECB would be “data dependent,” acknowledging that a move could happen a week or several months after the central bank stops bond purchases.
UK to ban Russian oil and gas imports; Europe resists embargo
The UK said it would stop importing Russian oil and gas by the end of 2022, supporting a similar move by the U.S. The European Union, however, unveiled a plan to cut Russian gas imports by two-thirds within a year, while Germany rejected a blockade. Chancellor Olaf Scholz said he preferred to apply “sustainable” pressure on Moscow that would not impose too big a cost on German consumers. Russia threatened to close its main gas pipeline to Germany in retaliation against a Western embargo.
Meanwhile, the exodus of European companies from Russia continued. Supermarkets in the UK also began pulling Russian products from their shelves.
Germany to spend EUR 200 billion on industry revamp, climate protection
In a discussion of the German coalition’s budget plans, German Finance Minister Christian Lindner told ARD, the public broadcaster, that EUR 200 billion would be set aside for spending on climate protection, hydrogen technology, expansion of the electric vehicle charging network, and industrial modernization.
Japan
Japan’s stock markets lost ground over the week, as uncertainty about the Russia-Ukraine situation continued to dent risk appetite, global commodity prices soared, and many central banks continued to shift toward a more hawkish stance. The Nikkei 225 Index fell 3.17%, and the broader TOPIX Index was down 2.46%. The yield on the 10-year Japanese government bond rose to 0.18%, from 0.15% at the end of the previous week. The yen hovered around its weakest level in five years against the U.S. dollar, finishing the week at about JPY 115.97, compared with JPY114.82 the prior week, mainly on policy divergence as the Bank of Japan (BoJ) reiterated its commitment to ultraloose monetary policy.
BoJ stays on dovish course, remains committed to meeting inflation target in sustainable manner
Although Japan’s core consumer price inflation remains muted, the country’s producer price index rose 9.3% in February from a year earlier—the steepest gain on record—driven primarily by higher energy prices. BoJ Governor Haruhiko Kuroda said that it was inappropriate to tighten monetary policy or withdraw stimulus, signaling that the central bank is staying on its dovish course, despite soaring fuel costs exerting upward pressure on the price of goods traded between companies. In the pursuit of its 2% target, the BoJ seeks to achieve moderate inflation accompanied by rising wages and corporate profits.
Japan’s economic growth in the fourth quarter of 2021 was downgraded to an annualized 4.6%, from 5.4%, on a smaller rise in private demand. Nevertheless, it marked a return to growth for the economy following a contraction in the previous three-month period. Separate data showed that household spending (which accounts for more than half of Japan’s gross domestic product) fell month on month on a seasonally adjusted basis in January amid the spread of the omicron variant of the coronavirus and new restrictions on activity, raising some concerns that the economy may shrink in the current quarter.
Japan takes more punitive measures against Russia, Belarus
The government announced that it will freeze the assets in Japan of three Belarusian banks, due to Belarus’ involvement in Russia’s invasion of Ukraine. It has already taken similar measures against several Russian banks and individuals, closely coordinating its response with the U.S. and European countries. Export controls on semiconductors and telecommunication equipment to Russia and Belarus will also be toughened. Several large Japanese companies have suspended their operations in Russia, joining other global companies in scaling back their businesses as the invasion continues.
China
Chinese markets recorded a weekly loss amid a resurgence in COVID-19 outbreaks and the war in Ukraine, which pressured prices for industrial metals and agricultural commodities. The broad, capitalization-weighted Shanghai Composite Index slumped 3.98%, and the blue-chip CSI 300 Index retreated 4.21%.
Risk markets recovered late on Friday after talks between Chinese and U.S. regulators over cooperation on audit and regulation were reportedly proceeding smoothly. Last week, the U.S. Securities and Exchange Commission (SEC) identified five Chinese companies that could be subject to delisting from U.S. exchanges if they fail to comply with audit requirements. The SEC has demanded complete access to the books of U.S.-listed Chinese companies, but Beijing has blocked domestic companies and their local accounting firms from complying with requests from foreign regulators.
The dispute over auditing has placed U.S.-listed shares worth hundreds of billions of dollars at stake. Yum China Holdings, owner of the KFC, Taco Bell, and Pizza Hut chains in China, said it may have to delist from the New York Stock Exchange by 2024 after the SEC’s notice, which sets a three-year deadline for Chinese companies to comply.
At the weeklong annual gathering of the National People’s Congress, the Communist Party-controlled parliament, Beijing set a goal for gross domestic product to expand “about 5.5%.” Many analysts regarded it as an ambitious goal and raised their expectations that Beijing would dial back tough structural reforms and step up stimulus. Unlike previous years, the government did not set a target for “energy intensity,” leading some analysts to conclude that policymakers were more concerned about supporting growth over curbing pollution.
In economic readings, China’s producer price index rose 8.8% in February from a year earlier, slightly above forecasts, while the consumer price index held steady at 0.9%, matching expectations. T. Rowe Price analysts expect that consumer price growth will continue to rise given the sudden increase in prices for oil and other commodities. Exports rose 16.3% in January and February from a year ago, while imports increased 15.5%. The pace of growth for both exports and imports slowed from December amid the rise in geopolitical uncertainty after Russia’s invasion of Ukraine.
The yield on the 10-year Chinese government bond rose to a multi-month high of 2.881%, up from 2.861% a week ago, before closing at 2.836% as inflation concerns raised fears of liquidity tightening. Inflation fears intensified globally after data showed that U.S. consumer inflation recorded its largest increase in 40 years in February. The yuan currency was flat.
Other Key Markets
Chinese markets recorded a weekly loss amid a resurgence in COVID-19 outbreaks and the war in Ukraine, which pressured prices for industrial metals and agricultural commodities. The broad, capitalization-weighted Shanghai Composite Index slumped 3.98%, and the blue-chip CSI 300 Index retreated 4.21%.
Risk markets recovered late on Friday after talks between Chinese and U.S. regulators over cooperation on audit and regulation were reportedly proceeding smoothly. Last week, the U.S. Securities and Exchange Commission (SEC) identified five Chinese companies that could be subject to delisting from U.S. exchanges if they fail to comply with audit requirements. The SEC has demanded complete access to the books of U.S.-listed Chinese companies, but Beijing has blocked domestic companies and their local accounting firms from complying with requests from foreign regulators.
The dispute over auditing has placed U.S.-listed shares worth hundreds of billions of dollars at stake. Yum China Holdings, owner of the KFC, Taco Bell, and Pizza Hut chains in China, said it may have to delist from the New York Stock Exchange by 2024 after the SEC’s notice, which sets a three-year deadline for Chinese companies to comply.
At the weeklong annual gathering of the National People’s Congress, the Communist Party-controlled parliament, Beijing set a goal for gross domestic product to expand “about 5.5%.” Many analysts regarded it as an ambitious goal and raised their expectations that Beijing would dial back tough structural reforms and step up stimulus. Unlike previous years, the government did not set a target for “energy intensity,” leading some analysts to conclude that policymakers were more concerned about supporting growth over curbing pollution.
In economic readings, China’s producer price index rose 8.8% in February from a year earlier, slightly above forecasts, while the consumer price index held steady at 0.9%, matching expectations. T. Rowe Price analysts expect that consumer price growth will continue to rise given the sudden increase in prices for oil and other commodities. Exports rose 16.3% in January and February from a year ago, while imports increased 15.5%. The pace of growth for both exports and imports slowed from December amid the rise in geopolitical uncertainty after Russia’s invasion of Ukraine.
The yield on the 10-year Chinese government bond rose to a multi-month high of 2.881%, up from 2.861% a week ago, before closing at 2.836% as inflation concerns raised fears of liquidity tightening. Inflation fears intensified globally after data showed that U.S. consumer inflation recorded its largest increase in 40 years in February. The yuan currency was flat.
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