Global markets continued to trade on moved by central banks as investors looked to oversee the correlation between the stock market and interest rates, picking up from last week, with rates temporarily coming out on top as yields moved up and stocks pulled back.
United States
The major benchmarks finished mixed as longer-term interest rates continued their ascent. The rise in rates again weighed on growth stocks by increasing the discount on future earnings, while value stocks managed gains, according to Russell indexes. Within the S&P 500 Index, energy shares outperformed as oil prices hit their highest levels in over a year. Technology shares were broadly weak, while consumer discretionary stocks continued to be dragged lower by electric vehicle maker Tesla.
Investors seemed divided about whether the rise in longer-term bond yields was due to a welcome upswing in growth expectations or a worrisome increase in inflationary pressures. Trading started out on a strong note, attributed in part to continued optimism about the rollout of coronavirus vaccines. On Monday, the federal government began distributing the Johnson & Johnson single-dose vaccine, which regulators had approved over the weekend, and President Joe Biden announced on Wednesday that new deals with drugmakers meant that every American adult should have access to vaccines by the end of May—moving up his timetable by two months.
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 31,496.30 | 563.93 | 2.91% |
| S&P 500 | 3,841.94 | 30.79 | 2.29% |
| Nasdaq Composite | 12,920.15 | -272.20 | 0.25% |
| S&P MidCap 400 | 2,506.73 | 10.47 | 8.68% |
| Russell 2000 | 2,191.38 | -9.67 | 10.80% |
Europe
Shares in Europe ended higher, buoyed by the prospect that easing restrictions implemented to curb the coronavirus’s spread and supportive monetary and fiscal policies could set the stage for global economic recovery. However, gains were curbed by growing expectations that central banks would act to stem inflation. The pan-European STOXX Europe 600 Index rose 0.91% in local currency terms. Major stock indexes also advanced, while the UK’s FTSE 100 Index climbed 2.27% on the week, lifted by finance minister Rishi Sunak’s annual budget, which called for more fiscal stimulus and the Office for Budget Responsibility’s projections that the economy would recover to its former size earlier than previously expected.
Core and peripheral eurozone bond yields rose as long-term inflation expectations strengthened. Uncertainty about whether the European Central Bank would act to suppress the increase in borrowing costs, combined with the Federal Reserve reiterating its dovish stance, gave yields another boost. UK gilt yields broadly moved higher, lifted by Sunak’s unveiling of the annual budget.
The EU accused the UK of breaking the terms of the Northern Ireland Protocol, a key part of the UK’s post-Brexit deal with the EU, after Britain unilaterally extended grace periods for border checks on food imports to Northern Ireland. The EU said it would take legal action, with a view to imposing tariffs and fines.
Asia
Chinese shares fell in choppy trade as rising U.S. yields and inflation expectations spilled into the country’s stock market. The large-cap CSI 300 Index fell 1.4%, while local currency A shares shed 0.2%. Technology shares fell in sympathy with recent highflying names related to consumers, electric vehicles, and property management
The yield on China’s sovereign 10-year bond rose to end the week at 3.36%, and the renminbi currency ended broadly flat against the U.S. dollar. Analysts believe that the People’s Bank of China has little reason to tighten monetary policy at this point, given the absence of inflation pressures. Moreover, a rate hike would encourage strength in the renminbi, which Beijing is trying to avoid.
Japan’s stock markets generated mixed returns for the week, with the Nikkei 225 Stock Average declining 0.35% and the broader TOPIX Index gaining 1.70%. The yen weakened and closed above JPY 108 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.09%, its lowest level since mid-February, on dovish comments from the Governor of the Bank of Japan (BoJ).
Other Global Financial Markets.
- Chile – Stocks in Chile, as measured by the IPSA Index, returned about 3.1%. During the week, the lower chamber of the legislature put in motion a bill that would allow pension participants to withdraw money from their pension accounts. This is the third such legislation since the onset of the pandemic about one year ago.
- Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about 4.7%. Against the backdrop of a new global wave of COVID-19 that has overwhelmed hospital capacity and is leading to significant new lockdowns, the legislature is working on an emergency constitutional amendment that will enable the government to provide more pandemic-related assistance to citizens without completely abandoning the mandatory spending cap intended to keep government spending in line with inflation.
