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Global Markets Weekly Review: Week 06, 2021

Global Stock markets finished modestly positive for the week on strong earnings growth and the increasing likelihood of additional fiscal stimulus.  In economic news, inflation and jobs data came in below expectations, as growth has stalled, and continuing claims remain significantly higher than pre-pandemic levels. With the entertainment and restaurant industries largely still on pause, a broad vaccine uptake will likely be a tailwind for the job market as demand begins to return

United States

The major  global indices notched a second week of gains and reached record highs, seemingly helped by the accelerating rollout of coronavirus vaccines and declining case trends. Communication services stocks outperformed in the S&P 500 Index, boosted by solid gains in Twitter and video gaming shares. Rising oil prices helped energy stocks, while weakness in Amazon.com and Tesla weighed on the consumer discretionary sector. Mid- and small-caps built on their substantial year-to-date lead over large-cap stocks, and value shares also outperformed.

The week brought the last major wave of fourth-quarter earnings reports, with 82 of the S&P 500 companies scheduled to report results, according to Refinitiv. Analysts polled by both Refinitiv and FactSet now expect overall earnings for the S&P 500 to have grown slightly on a year-over-year basis, marking an exceptionally quick earnings recovery compared with past recessions—following the global financial crisis in 2008–2009, it took the S&P 500 five years to recover its earnings-per-share peak.

Index Friday’s Close Week’s Change % Change YTD
DJIA 31,458.40 310.16 2.78%
S&P 500 3,934.83 48.00 4.76%
Nasdaq Composite 14,095.47 239.17 9.37%
S&P MidCap 400 2,543.10 66.93 10.25%
Russell 2000 2,287.93 56.81 15.68%
Europe

European equity markets were volatile but ended generally higher. Improving coronavirus infection rates, the rollout of vaccination campaigns, and hopes of a large U.S. economic stimulus supported equity markets, but concerns about extended valuations appeared to prompt some profit taking. In local currency terms, the pan-European STOXX Europe 600 Index gained 1.09%. Major indices were mixed: Germany’s Xetra DAX Index was roughly flat, France’s CAC 40 added 0.78%, and Italy’s FTSE MIB rose 1.42%. The UK’s FTSE 100 Index advanced 1.55%.

The UK economy contracted 9.9% in 2020—the most since 1709—according to the Office for National Statistics. Output grew a greater-than-forecast 1% in the final three months of 2020 due to increases in government expenditures and gross capital formation. The Bank of England’s outlook calls for a sharp economic contraction in the first quarter of 2021 because of continuing lockdown restrictions, followed by a sharp recovery around midyear due to a quick rollout of the national vaccination campaign.

The EC forecast that the eurozone economy will grow 3.8% this year and next year. The forecast for 2021 is lower than a previous projection published late last year, but the 2022 forecast calls for stronger growth than before.

Read: Nasdaq Touched New Record High as Dow, S&P Ease on Large-Cap Tech Decline

Asia

Chinese markets rallied ahead of the Lunar New Year holiday. The Shanghai Composite Index rose 4.5% and the large-cap CSI 300 Index gained 5.9% in a holiday-shortened week that ended Wednesday. Most markets across Asia were closed on Friday for the weeklong holiday that kicked off February 12. Hong Kong stocks ended at a three-week high. As of the end of the week, record southbound inflows from mainland investors had propelled Hong Kong stocks up 18% to date in 2021, their best start since 1985. Mainland Chinese investors had bought USD 49 billion of Hong Kong stocks year to date—more than half the total in 2020.

The car industry remained a bright spot in China’s economic recovery. Vehicle sales climbed 30% in January, the tenth straight monthly increase. According to one recent survey, more than one-half of Chinese consumers who planned to buy a vehicle this year said they would choose a new energy vehicle, a category that includes electric vehicles, hybrids, and hydrogen fuel cells.

Global Markets Asia
MSCI Asia Chart Performance {Chart: Investingcom}

Japan’s stock markets recorded a second straight week of solid gains. The Nikkei 225 Stock Average advanced 2.6% (740.88 points) and closed at 29,520.07. For the year-to-date period, the widely watched yardstick is ahead 7.56%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, also produced weekly gains. The yen was slightly stronger for the week and traded at about JPY 105 versus the U.S. dollar on Friday.

As the Bank of Japan (BoJ) works on completing a review of its monetary policy, BoJ board member Toyoaki Nakamura gave a speech in which he said it is important to pay attention to the negative impact of large asset purchases on market functions and that buying exchange-traded funds (ETFs) in the current environment when stocks are doing well is not “timely.” The central bank is currently the largest owner of Japanese equities.

Other Key Financial Markets
  • Mexico – Mexican stocks, as measured by the IPC Index, were little changed for the week. On Thursday, the Mexican central bank held its first monetary policy meeting of the new year, and, after remaining on hold since September 2020, policymakers unanimously decided to cut the overnight interbank interest rate from 4.25% to 4.00%, following a global step by central bankers.
  • Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about -0.90%. With the completion of congressional leadership elections, politicians are turning their attention toward their legislative agenda. President Jair Bolsonaro seems to be in favor of providing additional support to low-income households; his Economy Minister Paulo Guedes is also supportive, but—mindful of the country’s mandatory spending cap—he favors a smaller scale of assistance that is also tied to fiscal reforms. However, Senate President Rodrigo Pacheco has already rejected placing conditions on emergency financial assistance.
  • Turkey – Turkey’s benchmark stock index ended at 1,538.44 points fell 0.46 percent from the preceding close. At Thursday’s close, Borsa Istanbul’s BIST 100 index dropped 7.15 points from 1,545.59 points, opening the day at 1,542.50 points. The BIST 100 averaged amid 1,526.72 points and 1,548.69 points, with 31 stocks on the index increasing, 68 fell, and one flat in comparison with the last close. The benchmark index posted a daily trading rate of 24.5 billion liras (USD3.5 billion), ending with a market rate of 1.16 trillion Turkish liras (USD165 billion).

Also Read: Global Markets Weekly Review: Week 05, 2021