Global markets were moving this week, with the major highlights of the holiday shortened week being the global consumer confidence increasing to its highest level since the onset of the corona virus pandemic. What stole investors spotlight was U.S President Joe Biden’s sweeping infrastructure proposal, which has the potential to shape the fiscal and tax environment for years to come.
The major benchmarks closed higher for the holiday-shortened trading week as markets closed for the Easter Break. The large-cap S&P 500 Index made news on Thursday for crossing the 4,000 threshold for the first time, and the S&P MidCap 400 Index also set a new intraday record. The technology-heavy Nasdaq Composite index led the advance, however, helped by gains in a wide range of semiconductor and hardware stocks, as well as a rally in Facebook shares. The consumer staples and materials sectors lagged within the S&P 500. Relatedly, growth stocks widely outperformed value shares for the first time since January.
The jobless claims data seemed to drive a decline in the yield on the benchmark 10-year U.S. Treasury note at the end of the trading week. (Bond prices and yields move in opposite directions.) Municipal bonds continued to outperform Treasuries for much of the week, as the technical tailwinds of muted supply and strong cash flows remained intact—for the year-to-date period ended March 24, flows into municipal bond funds reached a record high, according to Lipper data.
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|S&P MidCap 400
European shares rose to near record highs, following global market counterparts in a shortened trading week on optimism about a speedy economic recovery. Expectations for U.S. infrastructure spending helped alleviated concerns of a longer-than-anticipated lockdown on the Continent. In local currency terms, the pan-European STOXX Europe 600 Index ended 2% higher compared to global market equals. France’s CAC 40 Index and Italy’s FTSE MIB made similar gains, while Germany’s Xetra DAX Index rose about 3.0%. The UK’s FTSE 100 Index was little changed.
Core eurozone government bond yields ended higher overall. They rose early in the week with their global market counterparts, they were later pushed lower after European Central Bank President Christine Lagarde said the end of the Pandemic Emergency Purchase Programme is “not set in stone.” Peripheral government bond yields largely tracked core markets. UK gilt yields rose primarily due to the sell-off in U.S. Treasuries, the efficient vaccine rollout in the UK, and the easing of restrictions in England.
Inflation in the 19 countries of the eurozone quickened in March to 1.3% from 0.9% in February on higher energy and non-processed food prices, according to an official flash estimate. The European Central Bank has said there would be a temporary spike in inflation, which will then slow to well below the 2% target in the years ahead.
Chinese equities were strong ahead of a long weekend, with sentiment buoyed by the news of an additional tax reduction of RMB 550 billion to consolidate the economic recovery, strong March purchasing manager’s index data, and the better tone of U.S. and global markets. From the previous Friday to Thursday April 1, the CSI 300 and Shanghai Composite each rose by 1.4%. Heavy machinery leader Zoomlion beat consensus earnings by 3%, giving positive sales guidance for all business segments—concrete machinery, aerial platforms, cranes, and agricultural machinery. The company is viewed as a bellwether not only for the construction sector but also for plant and equipment investment generally.
In the bond markets, yields were flat over the week, with the 10-year sovereign bond yielding 3.22%. FTSE Russell confirmed the inclusion of Chinese central government bonds (CGBs) in its WGBI global bond index, with a 36-month phase in from the end of September 2021. With an estimated USD 2.0 trillion of passive funds tracking the index, analysts think there could be substantial potential inflows into CGBs. In currency markets, the renminbi depreciated 0.5% against the U.S. dollar, closing at 6.574.
Japanese equities began the week positively, following their global market counterparts as investors continued to look for bargains following the sharp market decline early last week. Some disappointing economic results, and news that the weekly number of new coronavirus cases in Japan exceeded 10,000 for the first time in six weeks, saw markets falter midweek before closing Thursday on a rising trend once more. President Biden’s announcement of more than USD 2 trillion in U.S. infrastructure investment saw hopes renewed for a potential stimulus-driven global economic recovery. Japanese markets were also buoyed late by technology stocks, mirroring gains on the tech-heavy Nasdaq index. The benchmark Nikkei 225 Stock Average finished ahead 0.7% for the week through Thursday, while the broader TOPIX closed approximately 1% lower.
Official data showed that the total value of retail sales in Japan fell by an annual rate of 1.5% in February, while Japanese unemployment came in at a seasonally adjusted 2.9% in February, unchanged from the January reading. Japanese industrial production was also down by a seasonally adjusted 2.1% in February, month on month, exceeding the anticipated 1.2% decline. This was particularly disappointing given the 4.3% jump recorded in January.
Other Key Global Markets
- Chile – Chilean stocks, as measured by the IPSA Index, returned about 0.5%, an almost average of global markets thos week. During the week, the central bank unanimously decided, as was generally expected, to keep its benchmark lending rate at the technical minimum level of 0.5%.
- Mexico – Mexican stocks, as measured by the IPC Index, returned about -0.3%. The market was closed for religious holidays on Thursday and Friday. According to the Finance Ministry, the government still has plenty of room to increase tax compliance, for example, and stronger growth and higher oil prices would certainly be beneficial. In any case, if revenues fall short of the government’s expectations, Gifford believes that President Andrés Manuel López Obrador will find ways to compensate for it.