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Global Markets Weekly Review: Week 05, 2021

Global markets posted their best weekly gain since November, with major indexes closing at fresh record highs. Fiscal-stimulus expectations and progress on vaccine distribution continue to underpin the bullish market narrative. Crude oil traded to the highest levels in more than a year, logging an almost 10% gain for the week.

United States

The major benchmarks rebounded from the previous week’s steep losses, helped by fiscal stimulus plans and vaccine optimism. The large-cap S&P 500, Nasdaq Composite, and small-cap Russell 2000 indexes all reached record highs. Energy stocks outperformed as domestic oil prices hit their highest level in over a year on a surprising drawdown in U.S. reserves. Health care shares lagged. It was an active earnings week, with 112 S&P 500 companies scheduled to report fourth-quarter results, according to Refinitiv, pushing more activity to global markets.

The social media-coordinated “short squeeze” targeting hedge funds with short positions in GameStop and a few other companies also abated, but buyers turned their attention instead to the silver market, sending silver prices to their highest level since 2013.

Global market Investors kept a close eye on the Biden administration’s USD 1.9 trillion stimulus proposal during the week. On Tuesday, President Joe Biden met with Republican Senate leaders to discuss a compromise, with Republicans proposing instead a relief bill totaling USD 618 billion. It became increasingly clear, however, that Senate Democrats were prepared to move ahead alone using the so-called “budget reconciliation” process, which would require a simple majority in the chamber (including the tie-breaking vote from Vice President Kamala Harris). Early Friday morning, the Senate passed a budget resolution moving forward legislation authorizing the full USD 1.9 trillion President Biden had requested.

The yield on the benchmark 10-year U.S. Treasury note continued moving higher, propelled by vaccine news, improving economic signals, and stimulus hopes. (Bond prices and yields move in opposite directions.) Municipal bonds outperformed for much of the week, helped by strong technical factors. Lower-rated new issues continued to enjoy strong demand, as evidenced by a new general obligation deal from Detroit that was 30 times oversubscribed.

Index Friday’s Close Week’s Change % Change YTD
DJIA 31,148.24 1165.62 1.77%
S&P 500 3,886.83 172.59 3.48%
Nasdaq Composite 13,856.30 785.61 7.51%
S&P MidCap 400 2,476.17 136.05 7.35%
Russell 2000 2,231.12 157.49 12.80%
European Markets

Shares in Europe rose with global markets on hopes of a quicker economic recovery, spurred in part by hopes that the pace of coronavirus vaccinations would improve and by the prospect of more U.S. fiscal stimulus. The pan-European STOXX Europe 600 Index ended the week 3.46% higher.

Germany’s Xetra DAX Index and France’s CAC 40 posted solid gains but lagged Italy’s FTSE MIB Index, which rallied 7.00% after Mario Draghi, the former president of the European Central Bank, was given a mandate to form a new government. The FTSE 100 Index advanced 1.28%, as some disappointing earnings reports and a strong UK pound curbed its gains. The currency strengthened after traders reduced bets on a possible interest rate cut and data highlighted the UK’s rapid rollout of its coronavirus vaccination program.

The eurozone’s economy contracted less than expected in the fourth quarter, according to Eurostat’s initial estimate, which suggested that GDP fell 0.7% sequentially and 5.1% year over year. France’s and Italy’s economies shrank the most, while GDP expanded 0.1% in Germany and 0.4% in Spain. Economists expect a steeper GDP contraction in the first quarter due to the continuing lockdowns.

The BoE said it expected the UK economy to recover quickly over the year and return to its pre-pandemic size by the first quarter of 2022. The central bank lowered its forecast for economic growth in 2021 to 5% from the 7.25% it predicted in November but raised its estimate of 2022 GDP growth to 7.25% from 6.25%.

Asian Markets

Chinese stocks rose for the week. The large-cap CSI 300 Index gained 2.5% and outperformed the Shanghai Composite Index’s 0.4% rise. Sentiment improved following reports that Chinese e-commerce leader Alibaba Group, which has been the target of unfavorable regulatory actions, reached an agreement with regulators over the restructuring of its fintech affiliate Ant Group, whose record USD 34.4 billion initial public offering (IPO) was canceled in November. In Hong Kong, a record oversubscription by retail investors for the USD 5.4 billion initial public offering of Kuaishou Technology revealed huge investor appetite for Chinese tech companies. Shares of the video app company surged 161% in its Hong Kong public trading debut on Friday, making it the largest internet IPO since Uber went public in 2019, according to Bloomberg.

Japan’s stock markets surged for the week. The Nikkei 225 Stock Average advanced 4.0% (1,116 points) and closed at 28,779.19. For the year-to-date period, the widely watched yardstick is ahead 4.9%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, logged similar strong weekly gains. The yen weakened and closed above JPY 105 versus the U.S. dollar.

According to former deputy governor Kazumasa Iwata, the Bank of Japan (BoJ) is likely to begin allowing long-term Japanese government bond yields to rise through a reduction of long-term bond purchases, which should steepen the yield curve. He thinks the central bank will begin to allow its 0% interest rate target to move more widely. The plan, which Iwata believes will be publicly disseminated in March, should make the BoJ’s policy more sustainable. At the same time, the central bank will also employ loan programs for certain financial institutions.

Other Key Global Markets:
  • Turkey – Turkish stocks, as measured by the BIST-100 Index returned about 3.6%. The equity market seemed unfazed by President Recep Tayyip Erdogan’s call for a new Turkish constitution that would reflect the country’s relatively new executive presidential system and would likely, reduce the influence of opposition parties and independent voices in Turkey.
  • Mexico – Stocks in Mexico, as measured by the IPC Index, returned about 2.7%. The Mexican government recently released its full-year fiscal 2020 results. Mexico’s overall public sector deficit for the year was -3.9% of GDP, which was better than the budgeted expectations of -4.8%. Total government revenues decreased 4.1% year over year in real (inflation-adjusted) terms led by oil, even while non-oil revenues rose by 3.4% year over year, led by non-tax revenues.
  • South Africa – South Africa’s main stocks index advanced for a second day, up 0.4% in Johannesburg, with BHP Group Plc leading miners higher, and as Sasol Ltd. extended its rally to a third session as crude oil prices continued their climb, countering weakness in benchmark heavyweight Richemont and among banking shares.

Read: Global Markets Weekly Review: Week 04, 2021