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Global Markets Weekly Update: March 31, 2023
U.S.
Stocks post solid gains
The major equity indexes posted solid gains in a relatively quiet week for economic data releases and financial news. Small-caps outperformed large-caps, and value stocks advanced modestly more than growth stocks. Rising oil prices boosted energy stocks, which make up a significant part of value indexes. U.S. benchmark West Texas Intermediate crude oil rose more than 9% for the week, climbing back above the USD 70 per barrel level.
The week also brought the end of the first quarter of 2023. The technology-heavy Nasdaq Composite jumped more than 16% for the quarter, while the broad market S&P 500 Index rose approximately 7%. However, the narrowly focused large-cap Dow Jones Industrial Average was only modestly higher.
Bank stocks outperform
Bank stocks, which have declined sharply since Silicon Valley Bank (SVB) and Signature Bank collapsed earlier in March, advanced, with the widely followed KBW Bank Index easily outpacing the broad market’s gains. On Thursday, the Biden administration released a set of proposed new regulations for mid-size banks, or those with assets between USD 100 billion and USD 250 billion. The potential new rules would impose more stringent capital and liquidity requirements as well as require mid-size banks to pass more frequent stress tests under a wider range of market scenarios. The proposed changes would bring regulation of mid-size banks more in line with the rules faced by the country’s largest banks.
Fed’s preferred inflation measure still well above target
The market received some positive news on inflation, with the U.S. core (excluding food and energy) personal consumption expenditure (PCE) price index for February coming in at 4.6% versus consensus expectations for 4.7%. The core PCE is the Federal Reserve’s preferred measure of inflation. While the February 2023 reading was below the recent high of 5.4% reached in February 2022, it is still well in excess of the Fed’s 2% long-term inflation target. The Commerce Department released its final estimate of fourth-quarter 2022 gross domestic (GDP) product growth, which was revised slightly lower to 2.6%.
Treasuries take a breather from recent volatility
U.S. Treasury yields increased but took a breather from the worst of the elevated volatility that had dominated the market for U.S. government debt since SVB’s sudden collapse triggered worries that banking system turmoil could lead to recession. The difference between two- and 10-year Treasury yields became more negative—with short-term rates increasing more than longer-maturity yields—but the yield curve remained less inverted than in early March.
Tax-exempt municipal bonds performed better than Treasuries from a total return perspective. According to our muni traders, limited new issuance and relatively light inventories of municipal bonds on dealer balance sheets helped support the municipal bond market.
According to T. Rowe Price investment-grade corporate bond traders, the relative stability in Treasury yields aided sentiment across the broader market. However, our traders observed weakness in bonds issued by some real estate investment trusts (REITs) as commercial real estate concerns continued to emerge. Bonds issued by riskier office REITs remained under significant pressure and underperformed the broader market. High yield corporate bonds also benefited from the improving sentiment and modest new issuance. Our high yield corporate traders expect some new deals in the coming week as some higher-quality issuers appear ready to refinance bonds with near-term maturities.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
33,274.15 |
1036.62 |
0.38% |
S&P 500 |
4,109.31 |
138.32 |
7.03% |
Nasdaq Composite |
12,221.91 |
397.95 |
16.77% |
S&P MidCap 400 |
2,512.16 |
108.00 |
3.37% |
Russell 2000 |
1,802.48 |
67.56 |
2.34% |
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 rallied as fears of financial instability waned. In local currency terms, the pan-European STOXX Europe 600 Index ended 4.03% higher. Major stock indexes also posted strong gains, with France’s CAC 40 Index rising 4.38%, Germany’s DAX adding 4.49%, Italy’s FTSE MIB increasing 4.72%, and the Swiss Market Index (SMI) gaining 4.41%. The UK’s FTSE 100 Index rose 3.06%.
European government bonds broadly climbed as investors digested the implications of strong core inflation data and hawkish comments from European Central Bank policymakers. Yields on benchmark 10-year German government bonds ticked up. Easing concerns about the global banking sector also pushed French and Swiss bond yields higher as demand dwindled for assets perceived as havens. In the UK, yields on 10-year government debt climbed above 3.5% and ended near that level on increased expectations of another interest rate hike in May.
Eurozone inflation slows more than forecast
Annual consumer price growth in the euro area slowed to 6.9% in March from 8.5% in February as energy costs subsided, according to a preliminary estimate. The result was below the consensus forecast of 7.1% in a FactSet poll of economists. However, the core rate that excludes volatile food and energy prices ticked up to 5.7% from 5.6% in February. Separately, the unemployment rate in February held steady at 6.6%.
French pension protests continue
The French government said that about 740,000 people participated in nationwide demonstrations on March 28 against pension reforms, although unions put the figure at 2 million. The protests were smaller than the nationwide mobilization the previous week, and there were fewer violent clashes. Unions have called for an 11th day of national strikes on April 6. The government rejected union calls for “mediation” on the changes, but Prime Minister Elisabeth Borne is set to hold talks with unions in the next few days.
UK avoided recession in 2022; BoE’s Bailey says focus remains on inflation
Revised official data showed that the UK avoided a recession last year, helped by government subsidies for energy bills. Gross domestic product in the fourth quarter grew 0.1% sequentially, instead of being flat, and shrank by only 0.1% in the third quarter—less than the 0.2% contraction initially estimated. Meanwhile, the housing market remained weak. Mortgage lender Nationwide said house prices fell in March at the fastest annual rate since the great financial crisis, while Bank of England (BoE) data showed a big drop in net mortgage lending in February.
BoE Governor Andrew Bailey said in a speech that recent problems in the banking industry would not sway the central bank’s focus on inflation. He acknowledged that there were “big strains” in the global banking system but added that UK lenders were resilient and able to support the economy.
Japan
Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.40% and the broader TOPIX Index up 2.46%. Sentiment was boosted by easing concerns about the recent turmoil in the global banking sector and some expectations that the U.S. Federal Reserve may continue to moderate its monetary tightening. On the domestic front, core consumer price inflation in the Tokyo area slowed for the second straight month in March, but the reading still came in ahead of expectations at 3.2% year on year and continued to surpass the Bank of Japan’s (BoJ’s) 2% inflation target. This added to speculation that the central bank may tweak its ultra-loose monetary policy under incoming Governor Kazuo Ueda, who takes the helm on April 9.
Against this backdrop, the yield on the 10-year Japanese government bond (JGB) rose to 0.32%, from 0.29% at the end of the previous week, but remained well below the 0.50% level at which the BoJ caps JGB yields. The BoJ announced that it would reduce the minimum amount of JGBs for all maturities that it plans to purchase over the second quarter of the year, providing the central bank with an opportunity to reduce its bond buying. Amid easing demand for safe-haven currencies, the yen weakened to about JPY 133.1 against the U.S. dollar from around JPY 130.7 the prior week.
Japan to restrict some semiconductor-related exports
Japan’s government announced plans to restrict exports of 23 types of leading-edge semiconductor manufacturing equipment, saying equipment makers will need to seek export permission for all regions. The restrictions will come into force in July. Industry Minister Yasutoshi Nishimura said that Japan did not have one specific country in mind with these measures. The announcement comes after 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.
Prime minister promises progress on New Capitalism growth plan
Prime Minister Fumio Kishida promised progress in the government’s New Capitalism growth plan, which has as a guiding pillar fostering an environment conducive to wage growth. Kishida is seeking to narrow wage differentials between domestic firms and their overseas rivals, keeping in mind different economic situations. He stated that guidelines will be compiled by June with regard to labor market reform, including reskilling workers and facilitating labor turnover.
China
Chinese stocks advanced as strong economic data coupled with supportive comments from Beijing boosted confidence in the country’s growth outlook. The Shanghai Stock Exchange Index rose 0.22%, and the blue chip CSI 300 added 0.59% in local currency terms. In Hong Kong, the benchmark Hang Seng Index gained 2.43%.
Premier Li Qiang, who became the country’s No. 2 official earlier this month, reinforced China’s commitment to open its economy and deliver reforms that can stimulate consumption and international business. Speaking at the Boao Forum for Asia, a four-day summit for business and government leaders, Li pledged that China’s recovery would deliver new momentum to the world economy despite challenges in the geopolitical environment.
Separately, International Monetary Fund (IMF) Managing Director Kristalina Georgieva forecast that China’s rebound would account for approximately one-third of global growth this year amid increased risks to economic stability following banking sector turmoil. The IMF projected that China’s economy would grow 5.2% this year, while global growth would slow to below 3.0%. Last year, China’s GDP grew 3.0%, one of its lowest levels on record.
In corporate news, Chinese e-commerce giant Alibaba Group announced a plan to break itself up into six units that can independently raise capital or even seek initial public offerings. Many analysts believe that the company’s overhaul may appease regulators and could mark the end of China’s yearslong crackdown on private enterprise.
Post-recovery data remain mixed
China’s official manufacturing Purchasing Managers’ Index (PMI) rose to a better-than-expected 51.9 in March, while the nonmanufacturing PMI rose to 58.2, the highest reading since May 2011. Index readings above 50 indicate expansion from the previous month.
Meanwhile, industrial profits fell 22.9% in the first two months of 2023 from a year earlier, following a 4% decline for all of 2022, according to the National Bureau of Statistics. The drop in profits came despite earlier data showing that industrial output rebounded in the first two months of the year and indicated that some factories were cutting prices amid weak demand.
Other Key Markets
Colombia
On Thursday, Colombia’s central bank decided to raise its monetary policy rate from 12.75% to 13.00%. The decision was unanimous among policymakers.
In their post-meeting communiqué, they observed that inflation in January and February rose at a slower pace than it did in 2022. They specifically cited “progressive declines” in annual food inflation, which suggests that “the inflation rate is approaching its ceiling, from which the expected decrease for 2023 would start taking place.” Policymakers also noted that 12- and 24-month inflation expectations were lower in March than they were in January, and that GDP growth estimates for 2023 have edged higher. Nevertheless, they remain committed to bringing inflation down toward the central bank’s 3.0% target.
Mexico
Mexican stocks, as measured by the IPC Index, returned about 2.2%.
On Thursday, the Mexican central bank decided to raise the target for the overnight interbank interest rate by 25 basis points, from 11.00% to 11.25%. The decision among policymakers was unanimous.
In their post-meeting statement, policymakers noted that economic activity “has shown resilience in a complex external environment” and that the “labor market remains strong.” With regard to inflation, central bank officials observed that annual headline inflation “has decreased more than expected” since the previous policy meeting and that core inflation “has adjusted downwards gradually.”
While inflation expectations for 2023 and 2024 were revised upward again, policymakers still project that inflation will converge to the central bank’s 3% target in the fourth quarter of 2024. Nevertheless, they believe the balance risks for the trajectory of inflation remains biased to the upside. Some of the upside risks to inflation include persistence of core inflation at high levels; peso depreciation, which makes imports more expensive; and energy and agricultural price pressures.
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