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Global Markets Weekly Review: Week 20, 2021

Global markets were mixed during the week as various economic news streamed in. Inflation news seems to be taking global outlook  from all angles of the investors and could turn out to be a very popular word in the investment vernacular this year. With the  global economy picking up a head of steam and corporate profits surging, the foundation for stock-market performance is quite solid.

United States

Stocks posted mixed results in a volatile week of trading, with the large-cap S&P 500 Index ending modestly lower and the tech-heavy Nasdaq Composite Index gaining a little ground. These mixed results likely reflect strength in the U.S. economy, as well as concerns about global inflation and the timing of when the Federal Reserve might begin to rein in its accommodative policies. Within the S&P 500, the health care posted the largest gain. Energy and industrials lost ground.

Global Markets
The S&P 500 Index performance chart

U.S. equities gained ground on Friday, in line with global markets activities, lifted by the release of preliminary estimates for the IHS Markit Flash U.S. Composite PMI Output Index, which came in at a record 68.1 in May—a significant improvement from April’s 63.5 reading and above the consensus forecast. (PMI readings above 50 suggest an expansion in economic activity.) The service sector component of the survey was especially strong, with the flash PMI reading climbing to a record 70.1 from 64.7 in April. PMI for the manufacturing sector advanced to 61.5, a month-over-month improvement from 60.5.

Minutes from the Federal Open Market Committee’s (FOMC) meeting in late April offered additional insight into policymakers’ thinking on the economy and inflationary pressures. Investors focused on a statement that “a number of participants” suggested that policymakers “begin discussing a plan” for tapering the Fed’s monthly asset purchase program, which stands at USD 120 billion.

Index Friday’s Close Week’s Change % Change YTD
DJIA 34,207.84 -174.29 11.77%
S&P 500 4,155.86 -17.99 10.64%
Nasdaq Composite 13,470.99 41.01 4.52%
S&P MidCap 400 2,689.83 -32.06 16.61%
Russell 2000 2,215.27 -9.36 12.17%
Europe

Shares in Europe rose on signs that the global economy is rebounding as restrictions instituted to control the coronavirus’s spread begin to ease. However, worries about inflation curbed gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.43% higher. Major indexes were mixed: Italy’s FTSE MIB Index advanced, while Germany’s Xetra DAX Index and France’s CAC 40 Index were little changed. The UK’s FTSE 100 Index fell 0.36%, as strong economic data lifted the British pound versus the U.S. dollar.

Core eurozone bond yields ended higher on expectations that the European Central Bank (ECB) could slow its bond purchases. Peripheral eurozone bond yields fell. Uncertainties over Italy’s economic reform plans and the potential slowing of ECB bond purchases initially drove yields higher, but markets began to stabilize, and peripheral yields ended lower. UK gilt yields fell on concerns about the spread of a new coronavirus strain and its potential to delay the full reopening of the UK economy.

Eurozone business activity accelerated at the fastest pace in three years in May as virus containment measures eased, a survey of purchasing managers by IHS Markit showed. The flash composite PMI reached 56.9 in May, an improvement from the 53.8 registered in the preceding month. The services sector index climbed to 55.1 from 50.5.

Read: Global Markets Weekly Review: Week 19, 2021

Asia

Chinese stocks recorded a mixed week. The benchmark Shanghai Composite Index shed 0.1%, while the large-cap CSI 300 Index, whose growth stocks have fallen in recent weeks, added 0.5%. In the fixed income market, yields on Chinese bonds fell following disappointing April economic data. In currency trading, the renminbi ended the week roughly unchanged versus the U.S. dollar. The renminbi has strengthened since early April against the dollar, driven by China’s widening current account surplus, foreign direct investment, and foreign portfolio investment in Chinese bonds and stocks. The renminbi’s recent appreciation has pushed the official trade-weighted index—which measures the Chinese currency’s value against a basket of 24 major currencies—close to its 2018 high.

Economic data were mixed, with strong external demand offsetting softer domestic demand as residential construction and infrastructure investment slowed. Retail sales growth slowed to 4.3% in April on the two-year average—which analysts use to minimize distortions from the 2020 pandemic—down from March retail sales growth of 6.4%. A resurgence of coronavirus cases in several Chinese provinces has raised worries that COVID-19 still has potential to stifle a recovery in household consumption.

Japan’s exports grew the most since 2010 last month, rising by a higher-than-expected 38.0% from a year earlier and lending support to a trade-led recovery. Sales of transport equipment soared, boosted by motor vehicles and cars, while exports of machinery surged, led by power-generating machines. Exports to Japan’s key markets, the U.S. and China, rose by 45.1% and 33.9%, respectively.

Japan’s stock markets were some of the best performing in global markets, finishing the week higher, with the Nikkei 225 Index returning 0.83% and the broader TOPIX Index up 1.13%. Economic data were mixed, with Japan’s gross domestic product shrinking more than expected in the first quarter. Export growth in April was strong, and manufacturers’ business confidence rose to its highest level since late 2018 in May. The yield on the 10-year Japanese government bond fell slightly to 0.08%, while the yen strengthened, finishing the week at around JPY 108.66 against the U.S. dollar.

Global
Japan’s Nikkei 225 Year to Date Technical Performance chart
Other Key Global Markets
  • Brazil – Brazil’s Bovespa Index advanced by about 0.5%, flat as compared to other global markets. During the week, the lower chamber of the legislature passed a bill that would enable the government to privatize the state-controlled electric power company Eletrobras, reducing the government’s stake in the company to 45% from 60%.
  • Colombia – Colombian assets were volatile this week, in part due to news that credit rating agency S&P Global Ratings lowered Colombia’s sovereign credit rating one notch to BB+ with a stable outlook, just one month after reiterating its BBB- rating with a negative outlook. This downgrade into the below-investment-grade universe comes on the heels of President Iván Duque Márquez’s withdrawal of a tax reform bill due to social pressures. While T. Rowe Price emerging markets sovereign analyst Aaron Gifford was not surprised by the downgrade, he notes that it took place much sooner than expected.
Data Sources: Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.