Global markets rose during the week all through to Friday while safe havens such as the dollar and U.S. Treasuries dipped as hopes for a global economic recovery overshadowed the continued blockage of one of the world’s most vital shipping lanes at the Suez Canal and also the rising cases of coronavirus infections globally.
The major indexes were mixed for the week, as investors seemed to continue weighing optimism about reopening against inflation and interest rate concerns. Small-cap stocks lagged for the second consecutive week, signaling a potential pause or reversal in their recent market leadership. Similarly, communication services stocks fared worst within the S&P 500 Index, dragged down by sharp declines in shares of several traditional media companies following a stretch of strong performance. The closure of the Suez Canal because of a disabled cargo ship raised worries about already stressed global supply lines but boosted oil prices and energy stocks. Consumer staples, utilities, materials, and real estate shares were also strong.
The week brought a number of downward surprises in economic data, although the severe winter weather in February seemed to deserve a large part of the blame. February existing home sales fell 6.6%, roughly twice expectations, while new home sales tumbled 18.2%, nearly triple consensus estimates. Poor weather and supply chain issues appeared to take a toll on business investment, with nondefense durable goods orders excluding aircraft falling 0.8% in February.
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Shares in Europe rose following other global markets on hopes of an economic recovery, reversing earlier losses stemming from concerns about additional restrictions to curb the spread of the coronavirus and the European Commission’s (EC) threat to halt vaccine exports. In local currency terms, the pan-European STOXX Europe 600 Index added 0.85%. Major stock indexes were mixed: France’s CAC 40 ended the week down modestly, while Germany’s Xetra DAX Index, Italy’s FTSE MIB, and the UK’s FTSE 100 Index posted gains.
Data showing a EUR 7.1 billion increase in the European Central Bank’s weekly bond purchases also weighed on yields. Gilt yields declined on fears that the EC might block vaccine exports to the UK, potentially slowing the country’s inoculation campaign. Weaker-than-expected inflation data, unlike most global markets pushed out expectations for the Bank of England to tighten its monetary policy, also pulled yields lower.
Eurozone business activity unexpectedly grew, following other global markets, in March, a survey of purchasing managers showed. The flash composite Purchasing Managers’ Index (PMI), which combines services and manufacturing, rose in March to 52.5—the highest level since late 2018—compared with 48.8 in February. (PMI readings above 50 indicate an increase in activity levels; readings below 50 suggest a contraction.) Activity in the manufacturing sector expanded the most in 23 years, offsetting continued weakness in the service sector.
Chinese stocks recorded a weekly gain, thanks to a rally on Friday after the country’s central bank signaled that it was not about to tighten monetary policy. The Shanghai Stock Exchange Composite (SSEC) Index rose 0.4% to 3418.3, while the large-cap CSI 300 Index ended up 0.6% at 5038.0, its first weekly gain after five straight weeks of losses. Since reaching a record high on February 18, the CSI 300 has fallen 15%, while the SSEC is 8% below a 5½-year high also touched on February 18.
In China’s bond markets, the yield on the sovereign 10-year bond closed at 3.22%, off four basis points from the previous week, amid expectations that monetary policy would remain supportive in the near term. After a meeting with major lenders to discuss expectations for credit growth in 2021, the People’s Bank of China (PBOC) said that monetary policy should remain “neutral” since “the recovery of the real economy is not yet solid and weak links still need to be adjusted,” according to state-run media. The PBOC kept the loan prime rate (LPR)—which serves as a reference rate for new renminbi bank loans—unchanged for the 11th straight month, as expected.
Japanese stock markets posted sizable losses, moving away from global markets despite managing to recover some lost ground later in the week. The Nikkei 225 Stock Average declined 2.1% while the broader TOPIX gave up 1.4%. The yen weakened, closing at just below JPY 110 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week lower, at 0.08%.
On Friday, Japan’s Diet approved a record JPY 106.61 trillion (USD 976 billion) budget for the 2021 fiscal year to help mitigate the fallout from the coronavirus pandemic as well as rising social security and defense costs. Once again forgoing fiscal consolidation, the House of Councilors passed the budget for the year starting on April 1, following its approval by the House of Representatives in early March
Other Key Global Markets
- Mexico – Mexican stocks, as measured by the IPC Index, returned about 0.9%. On Thursday, the Mexican central bank held its regularly scheduled monetary policy meeting and decided to keep the overnight interbank interest rate at 4.00%.
- Turkey – Turkish stocks were a major focus on global markets, as measured by the BIST-100 Index, returned -9.6%. Turkish assets, including the lira, were rocked by news over the previous weekend that President Recep Tayyip Erdogan was replacing the central bank’s Governor Naci Agbal with Sahap Kavcioglu, an AKP Party loyalist who, like Erdogan, favors unorthodox economic policies. Kavcioglu represents Turkey’s fourth central bank governor in the last two years; his appointment took place just a couple of days after Turkey’s central bank raised its key one-week repo auction rate from 17% to 19%.