Global Markets Weekly Review: Week 19, 2021
Global markets retuned flat during the week as investors reacted to various economic data, fast-rising inflation returned last month and, along with it, so did market volatility. The catalyst for the pullback was the release of the April Consumer Price Index (CPI) last Wednesday, which rose 4.2% from a year ago and 0.8% from March.
Stocks slipped back from record highs as investors confronted stark signs of higher inflation, but a late rally moderated the week’s declines. Weakness in Tesla weighed especially on consumer discretionary shares, and Elon Musk’s announcement that electric vehicle maker would no longer accept Bitcoin as payment because of its carbon footprint sparked a sell-off in the cryptocurrency. At its low point on Wednesday, the technology-heavy Nasdaq Composite index was down roughly 8.5% from its intraday April 29 peak.
The week brought more data surprises on the heels of the previous Friday’s substantially weaker-than-expected jobs report for April. On Wednesday, the S&P 500 Index had its worst day since February 25—and the Dow Jones Industrial Average had its worst since October 28—after the Labor Department reported that core (excluding food and energy) consumer prices jumped by 0.9% in April, the most in nearly four decades and roughly triple consensus estimates. The headline consumer price index (CPI) rose 4.2% over the 12 months ended in April, exceeding forecasts for a 3.6% increase. Producer prices, reported Thursday, rose 0.6%, roughly double expectations.
The bond market, just like other global markets seemed to take its cue from the Fed, with the yield on the benchmark 10-year U.S. Treasury note increasing but staying well below its late-March highs. (Bond prices and yields move in opposite directions.) Municipal bonds outperformed Treasuries through most of the week but posted negative returns. According to the firm’s municipal traders, primary market demand was soft at midweek amid the sell-off in Treasuries but improved on Thursday.
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||2,721.89||-48.38||18.00%|
Shares in Europe fell in line with major global markets amid signs of accelerating inflation, stoking fears that interest rates could increase. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.54% lower. Major indexes were mixed. Germany’s Xetra DAX and France’s CAC 40 were little changed, but Italy’s FTSE MIB rose 0.63%. The UK’s FTSE 100 pulled back 1.21%, in part because the British pound appreciated relative to the U.S. dollar after local election victories for the ruling Conservative Party. The FTSE 100 Index tends to fall when the pound rises because many companies in the index are multinationals that generate a meaningful proportion of their revenue abroad.
Core eurozone bond yields rose unlike global counterparts. A higher-than-expected inflation print in the U.S. triggered a sell-off in high-quality government bonds, causing core yields to rise in tandem with U.S. Treasury yields. Peripheral eurozone bonds largely tracked the moves in core markets. Fears of the European Central Bank (ECB) slowing bond purchases also pushed yields higher. UK gilt yields also tracked U.S. Treasury yields amid global weakness in government bonds.
UK gross domestic product in March grew a stronger-than-expected 2.1% sequentially, led by the reopening of schools, vaccine rollouts, and pickups in the retail and construction sectors.
Chinese stocks rose strongly for the week unlike benchmark global market counterparts. The benchmark Shanghai Stock Exchange Composite Index gained 2.1%, while the large-cap CSI 300 Index advanced 2.3%. The yield on China’s sovereign 10-year bond ended unchanged at 3.17% after a week of mixed economic data. China reported net inflows of USD 9 billion into the country’s government bonds in April.
On the economic front, auto sales increased for the 13th straight month in April, rising 8.6% over a year ago. China’s producer price index jumped 6.8% in April, the largest gain since 2017, as raw materials prices surged. However, the CPI rose a less-than-expected 0.9%, restrained by lower food prices. Despite the muted CPI reading, global analysts see core consumer inflation on the rise as prices in the services sector start to normalize after the coronavirus pandemic. Aggregate finance—a broad measure of credit in the economy—rose 11.7% in April, down markedly from the previous month and the slowest growth pace since March 2020, when China’s economy started to reopen, according to CLSA
Japan’s stock markets registered sizable losses for the week in line with other major global markets amid a bout of volatility following an unexpectedly sharp rise in the U.S. consumer price index. Accelerating coronavirus infection rates and the announcement that a state of emergency will be declared in three more prefectures also dampened risk sentiment.
The Nikkei 225 fell 4.34% while the broader TOPIX Index was down 2.57%. Risk-off sentiment led the 10-year Japanese government bond yield to rise to 0.09%, while the yen weakened slightly, finishing the week at around JPY 109.41 against the U.S. dollar.
On the global corporate front, telecommunications and internet conglomerate SoftBank Group posted the highest-ever annual net profit for a Japanese company. Its Vision Fund has been boosted by a vibrant U.S. market for initial public offerings (IPOs), particularly the listing of South Korean e-commerce giant Coupang.
Other Key Global Markets
- Mexico – On Thursday, the Mexican central bank held its regularly scheduled monetary policy meeting, and policymakers decided unanimously to keep the overnight interbank interest rate at 4.00%, where it has been since a quarter-point rate cut on February 11. In their post-meeting statement, Governing Board members concluded that the balance of risks for inflation is biased to the upside and cited a recent year-over-year inflation reading of 6.08% through April as being higher than anticipated.
- Brazil – On Tuesday, the Brazilian government reported that inflation rose 0.31% month over month in April, which was slightly stronger than expected like any other global economies releasing data this week. It seemed to be a rare month without a major price shock, as food and fuel prices were stable, and services inflation remained low. Also, manufactured goods price pressures have slowly eased in recent months.
Data Sources: Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.