Global stocks set new highs again this week with a myriad of factors grabbing a piece of the spotlight, including Congressional hearings aimed at deciphering the recent GameStop trading frenzy, ongoing Washington negotiations over the details of the coming fiscal-aid package, and incoming data that continue to paint a picture of an economy that is enduring lockdown headwinds but is also primed for a jump amid rising vaccinations.
The major indexes ended mostly lower for the holiday-shortened trading week, with the large-cap benchmarks and technology-heavy Nasdaq Composite index hitting record intraday highs before falling back. An increase in longer-term interest rates weighed on fast-growing technology stocks by raising the discount rate on future earnings. Conversely, the increase favored bank shares by boosting lending margins and helped value shares—heavily weighted in financials—outperform growth stocks.
Stocks pulled back on Thursday morning, following Walmart’s report of weaker-than-expected earnings. The company also predicted slower earnings growth in the coming year, due in part to its commitment to raise the average wage of its workers to USD 15 per hour. The news followed the Labor Department’s report on Wednesday that producer prices increased by 1.3% in January, the biggest increase since December 2009. Retail sales also jumped 5.3% in the month—well above consensus expectations for a 1.1% gain—which many attributed to USD 600 direct payments to lower- and middle-income Americans approved as part of the December stimulus package.
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||2,536.05||-7.05||9.95%|
Shares in Europe ended the week modestly higher, supported by companies posting encouraging quarterly earnings. However, these gains were tempered by concerns that rising inflation and higher bond yields might prompt central banks to begin tightening monetary policy. In local currency terms, the STOXX Europe 600 Index advanced 0.21%. Equities in Germany and Italy fell, while France’s CAC 40 Index and the UK’s FTSE 100 Index gained ground.
Core eurozone bond yields rose. The 10-year German bund yield reached about -0.32% on Friday—its highest level since June 2020—as growing reflation expectations in the U.S. weighed on core asset demand. Strong Purchasing Managers’ Index (PMI) numbers also put upward pressure on yields. Yields on peripheral eurozone bonds largely tracked core markets. Ten-year gilt yields reached 0.64% on Friday, up from 0.57% at the start of the week.
The European Commission struck a deal with Pfizer and BioNTech for another 200 million doses of their coronavirus vaccine. However, Pfizer still has not delivered 10 million doses due in December, according to EU officials, cited by Reuters. Reports indicate that the pharmaceutical company had committed to making up the shortfall by the end of March.
Chinese shares ended on a mixed note on a holiday-shortened week. The large-cap CSI 300 Index slipped 0.5%, while the benchmark Shanghai Composite Index rose 1.1%. China’s financial markets reopened Thursday, February 18, after a weeklong Lunar New Year holiday. In fixed income markets, the yield on China’s 10-year government bond closed at 3.31%, five basis points above its pre-holiday level. The People’s Bank of China (PBOC) drained RMB 260 billion from the financial system, which dampened buying momentum. Now that China’s economy is on firm footing, analysts expect that the PBOC will gradually dial back pandemic stimulus measures. In currency trading, the renminbi closed at 6.487 against the U.S. dollar, slightly weaker from its pre-holiday level.
Economic data over the Lunar New Year holiday were atypical due to efforts to discourage global travel following a flareup of coronavirus infections in northern China. Travel plummeted 71% over the three weeks from January 28, reflecting the government’s campaign to dissuade people from using public transportation in what is normally China’s peak travel season. However, consumer spending was strong as people redirected their spending into other outlets: Retail and catering spending climbed 29% from the year-ago period when the virus was still spreading and from the corresponding period in 2019, according to China’s Commerce Ministry.
Japanese stock benchmarks produced mixed results for the week. The Nikkei 225 Stock Average advanced 1.7% (497.85 points) and closed at 30,017.92. This was the first time the widely watched benchmark had topped the 30,000 milestone in more than 30 years—although it remained well below the all-time high of 38,597 it reached in 1989. For the year-to-date period, the Nikkei index is ahead 9.38%. The broader equity market benchmarks, the large-cap TOPIX Index and the TOPIX Small Index, finished the week with modest losses. In other market news, the yen was slightly weaker and traded above JPY 105 versus the U.S. dollar on Friday. Meanwhile, the yield of the 10-year Japanese government bond finished the week at 0.11%, the highest level since November 2018.
Japan’s equity markets, which underperformed in 2020, have done well so far in 2021 as global vaccine distributions have led to optimism about a pickup in economic activity in the coming months. Japan, which has lagged other developed markets in starting vaccinations, began its vaccination rollout during the week.
Other Key Global Markets
- South Africa – Stocks in South Africa posted gains, overcoming ongoing political turbulence as former President Jacob Zuma defied a Constitutional Court order to appear and respond to corruption allegations. Current President Cyril Ramaphosa has pledged to fight corruption within the ruling African National Congress (ANC). Ramaphosa, who was formerly Zuma’s deputy within the ANC, faces opposition from factions within the party that some fear could destabilize the country’s government. South African stocks likely benefited from the early-week strength in commodities prices, helping to offset the political worries.
- Turkey – Turkish stocks climbed as the country’s central bank left its benchmark lending rate unchanged at 17%. Turkey’s central bank opted to keep rates steady despite rising inflation, which could have prompted an interest rate hike to contain price increases. The recent strength in the country’s currency, the lira, may have contributed to the central bank’s decision to hold off on a rate increase. Turkish bonds also gained after the central bank’s Thursday announcement.
- Brazil – Brazil’s Bovespa slid on Friday as oil major Petrobras slumped on concerns about top management, while Mexico’s peso lagged its peers for the week as the effects of a deep freeze in the neighboring state of Texas disrupted activity in the country. Shares of Petroleo Brasileiro slid more than 6%, on course for their worst session in 11 months as its chief executive resisted pressure from Brazil’s President Jair Bolsonaro to resign following tensions over rising fuel prices globally.
Also Read: Global Markets Weekly Review: Week 06, 2021