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Global Markets Weekly Review: Week 18, 2021

Global markets were mixed this week with most investors trading cautiously on the U.S Jobs Data and also data which was due from talks between Europe and Japan. Global Market investors also were keen to look at latest Economic data from China with a major focus drifting from the corona virus situation in India. Markets were also excited with news that U.S President Joe Biden had supported that drugmakers temporary lift patent rights on Covid-19 vaccines which will make it easier for other countries to produce the vaccine.

United States

The major indexes produced mixed returns across a wide range as a Friday rally erased some losses from early in the week. The narrowly focused Dow Jones Industrial Average fared best, while the technology-heavy Nasdaq Composite Index recorded its worst weekly loss in two months. Technology shares underperformed within the S&P 500 Index, along with consumer discretionary, utilities, and real estate stocks.

Earnings season continued to wind down over the week, with 442 of the S&P 500 companies expected to have reported first-quarter results by the end of the week, according to data from Refinitiv. Earnings over the quarter have generally surpassed analysts’ estimates by a wide margin, with analysts polled by FactSet currently expecting overall profits for the S&P 500 to have grown by over 49% relative to the year before.

Friday’s rally on global markets appeared to be due in large part to an important piece of data suggesting the economy was not growing as fast as some expected. The Labor Department reported that nonfarm payrolls expanded by only 266,000 in April, a fraction of the nearly 1 million jobs widely expected. While restaurants and leisure companies added 331,000 jobs, manufacturing and retail payrolls fell slightly.

Index Friday’s Close Week’s Change % Change YTD
DJIA 34,777.76 902.91 13.63%
S&P 500 4,232.60 51.43 12.69%
Nasdaq Composite 13,752.24 -210.44 6.70%
S&P MidCap 400 2,770.29 45.14 20.10%
Russell 2000 2,271.63 5.18 14.85%
Europe

Shares in Europe climbed on stronger-than-expected earnings results and growing confidence in a global economic recovery. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.72% higher. The German and French stock indexes rose by more than 1.5%. Italy’s FTSE MIB Index added 1.95%. The UK’s FTSE 100 Index gained 2.29% compared to other global market counterparts.

Core eurozone bond yields fell at the start of the week on underwhelming U.S. manufacturing data. Yields steadied after a European Central Bank policymaker hinted that the institution’s bond purchases could slow in June. The yields on peripheral eurozone government bonds largely rose. They initially tracked core markets lower, but Italian government bonds then sold off after reports emerged that the country would issue debt with a 30-year maturity. Uncertainty over the timing of Italy’s recovery package also pushed peripheral yields higher. UK gilt yields fell, tracking early moves in core markets. However, the Bank of England then revised its forecast for 2021 UK economic growth to 7.25% from 5% and said it planned to slow bond purchases, causing a momentary rise in yields.

Global Markets
The pan-European STOXX Europe 600 Index, one year performance

Economic data continued to point to a broad-based pickup in eurozone activity in March. The volume of eurozone retail sales climbed 2.7% sequentially, beating a consensus forecast, after rising 4.2% in February. Increases in retail sales volumes were particularly strong in the Netherlands, Denmark, Germany, and Lithuania. German manufacturing orders in March rose 3.0% sequentially, beating a consensus estimate for 1.7% and accelerating from a 1.2% expansion in February. Exports from Germany continued to recover in March despite the continuation of lockdown restrictions, rising 1.2% sequentially in adjusted terms.

Asia

Chinese stocks fell in a holiday-shortened week. The large-cap CSI 300 Index fell 2.5% from the previous Friday, while the Shanghai Stock Exchange Composite Index shed 0.8%. Mainland markets reopened Thursday after being closed Monday through Wednesday for the Labor Day holiday. Global consumer stocks were among the best performers as preliminary holiday sales and travel data were positively received by investors, though a 40% surge in tourism in Macau was seen as disappointing. Select pharmaceutical names fell after the U.S. announced that it might waive COVID-19 vaccine-related intellectual property rights, a move that would increase competition for many vaccine makers.

Calm returned to credit markets a week after Beijing offered financial support to troubled state-owned China Huarong Asset Management. Given the government’s recent focus on deleveraging, many investors have braced themselves for an uptick in corporate defaults in the coming months. In global foreign exchange trading, few analysts appeared concerned over China’s recent currency depreciation. On the other hand, many analysts expect continued capital inflows into China and see a stronger currency as a greater risk. For the week, the renminbi strengthened slightly against the U.S. dollar and closed at 6.454 per dollar.

In a holiday-shortened week, Japanese equities at least momentarily shrugged off concerns about the coronavirus and associated containment measures to register a gain: The Nikkei 225 rose 1.89%, compared to global markets while the broader TOPIX Index finished 1.83% higher. (The market was closed for Golden Week for the first three trading days.) Investor optimism was supported by the prospects of a global economic recovery following better-than-expected U.S. data in recent weeks. The yen was broadly unchanged at just above JPY 109 against the U.S. dollar, while the yield on the 10-year Japanese government bond fell to 0.08%.

Global Markets
Japan’s Nikkei 225 Index, one year chart performance.

Japan and the UK agreed to deepen their trade and security cooperation, following bilateral talks ahead of a G7 foreign ministers’ meeting. The two countries’ foreign ministers explored opportunities for increased collaboration in areas of joint interest and where expertise can be shared, such as economic security, advanced technologies, health, and science.

Other Key Global Markets
  • Turkey – Stocks in Turkey, as measured by the BIST-100 Index, returned about 3.1% compared to global markets. Early in the week, the government reported that the consumer price index (CPI) for April rose 1.7% month over month, and that 12-month inflation through the end of April was 17.1% versus a 16.2% year-over-year increase through the end of March.
  • Colombia –  On the global watch Colombian assets were pressured by President Iván Duque Márquez’s decision—following several days of protests that ended up turning violent—to scrap the tax reform proposal that his administration introduced to the legislature in April, as well as the resignation of the country’s finance minister and deputy finance minister. The bill would have increased the collection of value-added taxes (VAT) by including some goods and services while gradually increasing personal income tax rates, among other things.
Data Sources: Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.