![](/sites/default/files/styles/1086x410/public/architecture-buildings-city-316137.jpg?itok=nuzfiWyS)
Global Markets Weekly Update: March 12, 2021
U.S.
Stocks move back into record territory
Stocks moved broadly higher for the week, lifting most of the major benchmarks to new records. Investors seemed to remain focused on fluctuating longer-term bond yields and the discount they place on future earnings, resulting in substantial swings in the technology-oriented Nasdaq Composite Index. Shares in heavily weighted automaker Tesla rebounded after the previous week’s sell-off, lifting the consumer discretionary sector. The small real estate sector also outperformed within the S&P 500, while health care and energy shares lagged. The small-cap Russell 2000 Index outperformed and extended its recent market leadership, ending the week up roughly 19% on a price (excluding dividends) basis for the year to date.
The week started out on a down note as the yield on the benchmark 10-year U.S. Treasury note stayed near one-year highs. Bond yields retreated over the following days, which seemed to provide a lift to sentiment. Tesla and other high-growth stocks that had sold off in previous weeks were particularly strong as interest rate fears abated. On Wednesday, the Labor Department reported that core (excluding food and energy) consumer prices had increased only 0.1% in February, slightly below expectations. Core producer prices, reported Friday, rose 0.2%, in line with expectations and well below January’s 1.2% jump.
Sentiment hits pandemic-era high as jobless claims hit new low
Much of the rest of the week’s economic data were arguably upbeat. Initial weekly jobless claims fell to 712,000, the lowest level since November—although, as some pointed out, this was still above the highest level reached during the Great Recession of 2007–2009. Continuing claims fell to 4.1 million, below expectations and the lowest level in a year. The gradually healing labor market seemed to be reflected in the University of Michigan’s preliminary gauge of consumer sentiment in March, which rose more than expected and hit a new pandemic-era high of 83—up from a low of 73.5 last April but still well below the pre-pandemic level of 101 in February 2020.
Progress in the fight against the coronavirus also seemed to support sentiment. The U.S. administered a new high of 5 million doses of vaccine over the previous weekend, and, after seeming to plateau the previous week, the daily count of new cases resumed its decline. The White House announced a deal to secure another 100 million doses of the Johnson & Johnson vaccine, and President Joe Biden announced on Thursday evening that he was directing states to make vaccines available to all adults by May 1. GlaxoSmithKline and Vir Biotechnology also announced test results on Thursday, showing that their antibody treatment significantly reduced hospitalizations and deaths among COVID-19 patients.
On Thursday, President Biden also signed into law the USD 1.9 trillion American Rescue Plan Act, following its passage in Congress on a party-line vote. Treasury Secretary Janet Yellen stated that direct USD 1,400 payments to most Americans, a key part of the bill, should begin showing up in bank accounts as early as the weekend.
Munis get support from relief bill, while investors grow cautious in high yield corporate market
The Nasdaq gave back some of its gains after Treasury yields bounced back Friday to end higher for the week. (Bond prices and yields move in opposite directions.) The broad municipal bond market posted strong gains through most of the week as cash flowed back into the market and new issuance remained relatively modest. According to our traders, investor sentiment appeared to be supported by the passage of the American Rescue Plan Act, which includes substantial fiscal relief for state and local governments and other municipal borrowers. The headline deal of the week, California’s USD 1.8 billion general obligation and refunding bond sale, was met with strong demand and repriced to lower yields.
Our traders noted that heightened new issuance and expectations of forward supply weighed on investment-grade corporate bonds to start the week. However, progress around fiscal stimulus, stability in rates, and two days of lighter issuance provided tailwinds for the asset class, along with eased inflation concerns. Unfavorable technical conditions weighed on the below investment-grade market, however. Sellers outnumbered buyers, and high yield funds reported the largest weekly outflow since July.
U.S. Stocks1
Index |
Friday's Close |
Week’s Change |
% Change YTD |
---|---|---|---|
DJIA |
32,778.64 |
1,282.34 |
7.10% |
S&P 500 |
3,943.34 |
101.40 |
4.99% |
Nasdaq Composite |
13,319.86 |
399.71 |
3.35% |
S&P MidCap 400 |
2,643.98 |
131.06 |
14.63% |
Russell 2000 |
2,352.79 |
160.58 |
18.96% |
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 Associates’ presentation thereof.
Europe
Shares in Europe rose as the U.S. prepared to inject a massive amount of fiscal stimulus into the economy and the European Central Bank (ECB) pledged to buy more bonds to counter rising borrowing costs. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 3.52% higher. Germany’s Xetra DAX Index climbed 4.18%, France’s CAC 40 advanced 4.56%, and Italy’s FTSE MIB gained 5.00%. The UK’s FTSE 100 Index added 1.97%.
Core eurozone government bond yields fell. The ECB announced it would accelerate bond purchases in the second quarter to curb the recent rise in yields, pushing bond prices up. Fourth-quarter gross domestic product (GDP) for the region was also revised down slightly, further suppressing yields. Peripheral eurozone government bond yields largely tracked core markets. UK gilt yields also declined broadly. However, optimism stemming from the UK’s vaccine rollout and the final approval of U.S. fiscal stimulus helped to moderate this decline later in the week. Better-than-expected January GDP data for the UK also supported gilt yields relative to other developed markets.
Coronavirus cases increase; vaccination complications
Italy said it would impose a nationwide lockdown over the Easter weekend after an uptick in the number of coronavirus infections. Austria, Croatia, Cyprus, and Greece reported notable increases in infections, while case counts continued to rise in the Czech Republic, Hungary, Poland, Serbia, Norway, and Sweden.
The European Union’s (EU’s) vaccination efforts suffered another setback when Italy banned the use of a batch of the Oxford-AstraZeneca vaccine, after reports of serious adverse effects. Denmark also suspended its use of the vaccine over concerns it might cause deadly blood clots. Meanwhile, the European Medicines Agency approved the Johnson & Johnson vaccine for use in the EU. The company said it expects to start delivering doses in April.
ECB raises 2021 GDP and inflation forecasts
The ECB’s latest estimates call for EU GDP growth at 4% in 2021, an increase from the 3.9% expansion that the central bank forecast in December. The ECB also revised its inflation outlook to 1.5% from 1% for 2021 and adjusted its 2022 estimate to 1.2% from 1.1%. ECB President Christine Lagarde attributed these adjustments primarily to “temporary factors and higher energy price inflation.”
UK GDP shrinks less than forecast
UK economic output shrank 2.9% sequentially in January due to a sharp slowdown in the services sector, official data showed. Economists in a Reuters survey had forecast a 4.9% contraction, likely reflecting the new lockdown measures instituted at the start of the year. Exports of UK goods to the EU, excluding gold and other precious metals, fell 40.7% from the preceding month. UK imports from the EU tumbled 28.8%.
Japan
Japan’s stock markets advanced over the week, with the Nikkei 225 Stock Average gaining 2.96% and the broader TOPIX Index up 2.89%. Japanese value stocks continued their strong outperformance relative to their growth peers, amid increased global interest in companies whose fortunes are closely tied to the economic cycle: The TOPIX Value Index has surged so far this year. The yen weakened to near a nine-month low, closing above JPY 109 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.11%.
Economic growth revised lower
Second estimates for economic growth showed that Japan’s GDP expanded at a slower rate than initially anticipated over the final quarter of last year. According to data from the Cabinet Office, the economy grew an annualized rate of 11.7% in October–December 2020, weaker than the preliminary reading of 12.7%. The revision mainly reflected a bigger drag from private inventories. Separate data showed that household spending fell 6.1% in January compared with the same month a year earlier, dampened largely by a second state of emergency declared over the coronavirus. However, declines were smaller than those in April 2020, when the first state of emergency was declared.
Government plans to boost domestic vaccine industry
The pace of Japan’s coronavirus inoculation rollout has lagged that of developed peers—it was the last nation in the G-7 to begin vaccinations. The focus has been on vaccinating medical workers first before moving to the elderly population, with shots for those over 65 only due to start in April. Largely dependent on imported vaccines, the government’s goal is to secure enough for the whole country in the first half of this year. To counter import risks, the government is set to spend around USD 1.5 billion to support domestic vaccine development. The government will also partner with other Asian nations on clinical research and trials to speed up development.
All eyes on Bank of Japan’s (BoJ’s) March 18–19 monetary policy meeting
Ahead of the BoJ’s March 18–19 monetary policy meeting, messaging was mixed as the central bank reviews its approach to conducting further effective and sustainable monetary easing with a view to achieving the price stability target of 2%. Recent comments from BoJ Governor Haruhiko Kuroda had played down the possibility that the central bank would make more flexible its policy on yield curve control—which restricts movements in the 10-year Japanese government bond yield to a narrow band. Deputy Governor Masayoshi Amamiya, however, said that yields should be allowed to move more, as long as they do not diminish the effect of monetary easing.
China
Chinese stocks posted a weekly loss as the Shanghai Composite Index fell 1.4% and the large-cap CSI 300 Index shed 2.2%. Despite recent weeks’ underperformance, investor appetite for Chinese stocks appeared undiminished. Net inflows into Chinese stocks have turned neutral for the first time since November, according to data from global custodian bank State Street, reflecting improving demand from China’s major trading partners and the country’s ongoing recovery. The recent weakness in Chinese stocks comes as Beijing appears to be focusing more on longer-term economic restructuring and financial deleveraging amid a strong post-pandemic recovery. In the bond market, the yield on China’s sovereign 10-year bond declined nine basis points to 3.27% for the week.
On Thursday, China concluded its annual National People’s Congress (NPC) meeting, the country’s highest profile political gathering, at which lawmakers set economic targets and other economic policy. Days after unveiling China’s 2021 GDP growth target of above 6% that was widely viewed as conservative, Premier Li Keqiang said that the forecast could still be exceeded and was “intended only to provide guidance for further development.” Li’s comments suggested that the official growth target leaves scope for flexibility as China’s economy is in the process of normalizing. In a departure from previous NPC meetings, however, officials did not reveal official targets for credit growth. However, many China policy analysts expect a gradual deceleration in credit this year with no sharp rise in funding costs. With consumer prices falling, analysts see little reason for Beijing to withdraw monetary stimulus at present.
Consumer and producer prices diverge
China’s consumer price index (CPI) declined 0.2% in February from a year earlier, while the producer price index (PPI) jumped 1.7% year on year at the fastest clip since 2018, according to Reuters. Last month’s increase in PPI, or factory gate inflation, was driven by price increases in energy, basic materials, and capital goods. Analysts pay attention to China’s producer prices for their impact on global inflation as supply chains have become more intertwined in recent decades. Recent reports of African swine fever in parts of China have raised concerns that the virus’s spread could lead to higher prices for pork, which has a large weighting in the CPI. However, policymakers have previously brushed off inflation caused by soaring pork prices, most recently last year when a viral outbreak pushed the CPI above 5%.
In other economic readings, China’s merchandise exports for January and February combined surged about 61% year on year in U.S. dollar terms, while imports rose 22%, according to customs data. Both sets of trade data beat economists’ expectations and were attributed to last year’s coronavirus-depressed levels. Even so, most analysts viewed China’s underlying trade performance in the first two months of this year as remarkably strong across the board.
Other Key Markets
Mexico
Mexican stocks, as measured by the IPC Index, returned about 3.0%.
During the week, the government reported that Mexico’s inflation in February was 0.6% month over month and 3.8% year over year. This was generally in line with expectations, and it marks the fourth consecutive monthly increase in the consumer price index since the 3.3% year-over-year low in November. As a result, 12-month inflation is once again close to the central bank’s 4% upper limit.
T. Rowe Price emerging markets sovereign analyst Aaron Gifford notes that rising energy prices were again the main culprit, but core goods prices—particularly processed food prices—have also been elevated due to pandemic-related supply shocks. In any case, both measures did show some stability or improvement on a sequential basis while core services continue to be benign, suggesting that the inflation upswing is mostly temporary.
At its last monetary policy meeting on February 11, the Mexican central bank decided to cut the overnight interbank interest rate from 4.25% to 4.00%. Gifford believes that lowering rates further will be more difficult, however, given near-term inflation pressures and greater market volatility, led by rising U.S. Treasury yields. He notes that while the February decision was unanimous, evidence from the meeting’s minutes suggest that some board members are becoming less convinced about their ability to ease monetary policy further.
Brazil
Stocks in Brazil, as measured by the Bovespa Index, returned about -1.0%.
Sentiment toward Brazilian assets was hurt in part by news that a judge annulled all of the existing convictions against former President Luiz Inacio Lula da Silva. This decision restores all of his political rights and would allow him to run for office, including the presidency. While it is possible that the country’s supreme court could overturn the judge’s decision or that prosecutors could attempt to convict him again, T. Rowe Price sovereign analyst Richard Hall believes that Lula da Silva—if ultimately chosen to be the Workers’ Party candidate in next year’s presidential election—could defeat incumbent President Jair Bolsonaro.
In economic matters, the government reported that inflation in February was 0.86% month over month, which was higher than expected. Year-over-year inflation is now 5.2%, the highest since 2017, and Hall believes that it could go as high as 7% around June. Energy was the biggest driver, with fuel prices up 7% for the month, but there also remains decent price pressure in manufactured goods. Manufacturing capacity utilization is at its highest level since 2015, so Hall is not surprised that manufacturers are trying to raise prices amid strong demand for goods. On the other hand, services inflation remains very low, and food price inflation was not a significant factor for the first time since July. However, Hall notes that higher global food prices and Brazil’s currency depreciation mean that food inflation could increase again.
IMPORTANT INFORMATION
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial, and tax advice before making any investment decision. T. Rowe Price group of companies, including T. Rowe Price Associates, Inc., and/or its affiliates, receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation, or a solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are collectively and/or apart, trademarks of T. Rowe Price Group, Inc. © 2021 T. Rowe Price. All rights reserved.