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Global Markets Weekly Review: Week 11, 2021

Major Global market indices continued their gaining streak this week, with some touching record highs early in the week, some of them however later lost ground as bond yields reached their highest levels in over a year in the United States and the growing resurgence of concerns of the coronavirus pandemic in some parts of Europe.

United States

Energy stocks fell sharply as global oil prices saw their biggest daily drop since the summer, seemingly driven by rising U.S. inventories and demand concerns due to renewed lockdowns and the slow vaccine rollout in Europe. The increase in yields augured well for banks’ lending margins and supported financials shares for most of the week, but the sector fell back on Friday after the Federal Reserve announced that it was not extending an exemption put in place early in the pandemic that allowed banks to hold lower capital reserves. The small-cap Russell 2000 Index fell the most, giving back some of its leadership for the year to date.

The equity rally on global markets stalled on Tuesday morning after longer-term Treasury yields resumed their rise—over the next two trading days, the yield on the benchmark 10-year note soared roughly 17 basis points (0.17%) and hit a new pandemic-era high of around 1.75% before retreating a bit. The equity market’s reaction to the rise was somewhat muted, seemingly helped by the release of the Federal Reserve’s policy statement on Wednesday.

Index Friday’s Close Week’s Change % Change YTD
DJIA 32,627.97 -150.67 6.60%
S&P 500 3,913.10 -30.24 4.18%
Nasdaq Composite 13,215.24 -104.62 2.54%
S&P MidCap 400 2,622.92 -23.42 13.71%
Russell 2000 2,289.64 -63.15 15.76%

Europe

Shares in Europe ended little changed. Although central banks maintained their dovish policy stance; seen a move on other global markets to support an economic recovery, concerns about a resurgence in coronavirus infections in some countries limited upside. In local currency terms, the pan-European STOXX Europe 600 Index ended the week roughly flat. Major European indexes were mixed. Germany’s Xetra DAX Index gained 0.82%, while Italy’s FTSE MIB Index advanced 0.36%. However, France’s CAC 40 Index fell 0.80%, and the UK’s FTSE 100 Index declined 0.61%.

The BoE’s policymakers voted unanimously to keep the benchmark interest rate at an all-time low of 0.1% and to continue its existing bond-buying program. The central bank said that global economic developments “had been a little stronger than anticipated” last month and noted that the U.S. fiscal stimulus package should provide “significant additional support.” It said bond yields had increased to reflect the stronger recovery while observing that the prices of risk assets had held up.

The Bank of France (BoF) increased its 2021 forecast for economic growth to 5.4% from 4.8% and said that activity at the end of last year held up better than estimated. The new projections may prove conservative, as they assume that coronavirus restrictions remain through the first half of 2021.

Asia

Chinese stocks fell for the week, with the Shanghai Composite Index slipping 1.4% and the large-cap CSI 300 Index shedding 2.7%. Chinese stocks underperformed other Asian markets on Friday after negative headlines about the first day’s talks at the U.S.-China meeting in Alaska, with each side criticizing the other. The yield on China’s sovereign 10-year bond rose following the release of strong economic data for January and February but fell on Friday to end at 3.26%, unchanged from the prior week.

Global Markets
The Shanghai Composite Index one year chart performance

In money markets, the seven-day reverse repo rate—the cost of funds in China’s interbank market—hovered close to the central bank’s target of 2.2%, signaling that liquidity fears that rattled markets earlier this year have eased. In currency trading, the renminbi was little changed, closing at 6.509 versus the U.S. dollar.

The performance of Japan’s stock markets was mixed over the week. The Bank of Japan’s (BoJ’s) announcement that it will limit its purchases of exchange-traded funds (ETFs) to those tracking the TOPIX contributed to the index’s 3.13% gain. The Nikkei 225 Stock Average underperformed, returning 0.25%. The yen strengthened slightly, closing at just below JPY 109 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.11%.

The BoJ published a long-awaited review of its policy tools following its March 18–19 monetary policy meeting, introducing slight tweaks with a view to keeping easing measures in place for a prolonged period. It removed its guidance to buy ETFs at a set pace: Under the new policy, it will intervene only when necessary, rather than steadily increasing its holdings, while maintaining a JPY 12 trillion ceiling for annual purchases. According to the BoJ, large-scale purchases during times of heightened market instability are effective.

Other Key Global Markets
  • Turkey – Turkey’s central bank lifted its key lending rate from 17% to 19%—one of the highest levels in the global markets —in an attempt to address growing inflation risks. Most forecasters had predicted a hike of around one percentage point. The Turkish lira, which has been hit hard by higher U.S. Treasury yields over the past month, rallied after the rate increase was announced. 
  • Brazil – Brazil’s central bank surprised investors by making its first rate hike in nearly six years, and its largest interest rate increase in more than a decade, on Thursday. Policymakers increased rates by 75 basis points, from 2.0% to 2.75%, and signaled that another hike of the same size was likely at its next meeting. In a statement, the bank’s monetary policy committee, known as Copom, noted that there were still risks to the economy; just like any other global markets; from the coronavirus, but the policymakers said they thought it was time to start unwinding the “extraordinary stimulus” that had been in place. Copom noted that gross domestic product at the end of 2020 was strong and that inflation forecasts in Latin America’s largest economy were picking up
  • Russia – Russia’s central bank raised its benchmark lending rate by 25 basis points, from 4.25% to 4.50%. Many global market analysts had expected the bank to wait at least one more meeting before beginning to hike rates. Similar to its counterparts in Brazil and Turkey, Russian policymakers cited rising inflation risks. Annual inflation through February had risen to 5.7%, higher than the bank’s 4% target.