Weekly Markets ReviewGlobal Markets Weekly Review: Week 21, 2021

Global markets traded fairly mixed this week as most markets as investors watched on various economic data from the United States with relation to Inflation and also data from China and Japan on unemployment and various economic data. Market also looked at Mexico on the South America’s and also general data from the expansion of the Hong Kong Index which is due from 1st of June, 2021.

United States

Stocks recorded solid gains, leading the wider global markets rally for the week, bringing the large-cap S&P 500 Index to within roughly 0.5% of the all-time intraday high it established on May 7 and leaving it with a small gain for the month.

Growth shares handily outperformed their value counterparts on global watch; Facebook and Google parent Alphabet helped communication services stocks outperform within the S&P 500, and a rebound in Tesla boosted consumer discretionary shares. The light trading volumes came in advance of the long Memorial Day weekend, with U.S. markets scheduled to be closed Monday, May 31.

The major indexes were relatively steady for most of the week, which the firm’s traders attributed in part to a seeming lack of directional drivers. Investors did appear to keep a close eye on economic data, although the week’s reports sent conflicting signals. On the positive side, weekly jobless claims fell more than consensus expectations, to a new pandemic-era low of 406,000, and durable goods orders excluding the volatile transportation sector increased by 1% in April, also more than expected. On the downside, some regional manufacturing gauges came in lower than anticipated, although still indicating solid expansion. Negotiations also continued on a new round of infrastructure spending, with Republicans unveiling a USD 928 billion counteroffer to President Joe Biden’s latest proposal of roughly USD 1.7 trillion.

Concerns about inflation resulting from supply chain pressures and the release of pent-up consumer demand may have also restrained the week’s gains in both the U.S and other global markets. The Commerce Department reported on Friday that its core (less food and energy) personal consumption expenditure price (PCE) index increased 3.1% in the year ended in April, slightly above expectations and the biggest increase in nearly three decades—and well above the Fed’s 2% target for its preferred inflation gauge. Several Fed officials stated that they wouldn’t be surprised to see bottlenecks and supply shortages push prices up in the coming months but that much of those increases should prove temporary.

Index Friday’s Close Week’s Change % Change YTD
DJIA 34,529.45 321.61 12.82%
S&P 500 4,204.11 48.25 11.93%
Nasdaq Composite 13,748.74 277.75 6.68%
S&P MidCap 400 2,727.45 37.61 18.24%
Russell 2000 2,268.97 53.70 14.89%
Europe

Shares in Europe advanced much higher than their global markets counterparts, continuing affirmations of ultra-easy monetary policy and reports of a massive U.S. fiscal spending plan. In local currency terms, the pan-European STOXX Europe 600 Index ended the week up 1.02%. France’s CAC 40 gained 1.53%, Germany’s Xetra DAX Index added 0.53%, and Italy’s FTSE MIB Index advanced 0.78%. The UK’s FTSE 100 Index ended roughly flat, in part reflecting the UK pound’s appreciation versus the U.S. dollar. The reopening of the economy and comments from Bank of England (BoE) policymaker Gertjan Vlieghe, who said the central bank could raise interest rates as soon as the first half of next year, helped the currency rise for a fifth consecutive week.

Global Markets
FTSE MIB Index one year performance chart

Core eurozone bond yields eased. Germany’s 10-year bund rallied early in the week, supported by dovish comments from European Central Bank policymakers, who said that they saw no evidence of sustained inflationary pressure and that winding down emergency bond purchases would be premature. However, yields abruptly rose toward the end of the week as U.S. Treasury yields, considered as global benchmark dropped. Bond yields in peripheral European markets largely tracked those in the core. UK gilt yields were broadly flat after a turbulent week. They followed core markets lower early on but rose sharply after Vlieghe’s comments regarding the BoE possibly raising interest rates in the first half of next year if the economy recovers faster than expected.

The Ifo Business Climate Index for Germany rose to 99.2 in May—its highest level since May 2019—from 96.6 in April, as optimism about the economic outlook strengthened. The French economy, just like other global markets slipped into recession in the first quarter, with a preliminary estimate of 0.4% growth revised to a contraction of 0.1% due to weaker-than-expected construction data.

Asia

Chinese stocks rose strongly compared to other global markets, with both the CSI 300 Index and Shanghai Composite Index posting the best weekly gain in more than three months, according to Reuters. Tourism-related names and other stocks leveraged to an economic reopening rose after China passed a milestone of over 500 million COVID-19 vaccinations. In an effort to reduce financial risks, policymakers promised zero tolerance for commodity speculation and further cracked down on cryptocurrency mining. Separately, Chinese regulators turned down applications to issue RMB 154 billion of asset-backed securities from various companies including one of the largest global fintech company Ant Group, according to domestic news portal Sina.com. The amount was twice the amount rejected in 2020 and reflects the government’s renewed focus on curbing financial risks.

On June 1, a long-awaited revamp of the Hang Seng Index (HSI) will see the Hong Kong stock benchmark expand from 55 to 58 names with the addition of auto and battery maker BYD, solar panel glass maker Xinyi Solar Holdings, and real estate services company Country Garden Services. The HSI will add five new stocks each quarter, expanding to 80 in total by mid-2022, when it will cover around 71% of the Hong Kong stock market (versus 57% today). The overhaul of the HSI, first announced in March, reflects the growing influence of China’s tech giants and a bid to increase the index’s relevance since its creation in 1969.

Japan’s stock markets registered a gain for the week, with the Nikkei 225 Index rising 2.94% and the broader TOPIX Index up 2.24%. Signs that Japan was accelerating its COVID-19 vaccine rollout were supportive of sentiment. The yield on the 10-year Japanese government bond was broadly unchanged at 0.08%, while the yen weakened notably to around JPY 109.82 against the U.S. dollar.

Global Markets
The Topix 500 Index, one year performance chart.

Japan’s unemployment rate which was one of the most looked on data in global markets this week worsened in April to 2.8%, up from 2.6% the previous month. Separate data showed Tokyo consumer prices excluding fresh food fell 0.2% in May from a year ago, dropping at the same pace for a second month. The reading was in line with consensus. Prices in the capital are a leading indicator of national inflation trends.

Other Key Global Markets
  • Mexico – Mexican stocks, as measured by the IPC Index, returned about 0.4%. On Thursday, the Mexican central bank published the minutes from its May 13 monetary policy meeting, at which policymakers kept the key interest rate at 4% but included hawkish elements in their post-meeting statement. With regard to monetary policy, central bank officials still have varying opinions, though several seem to be focusing on having limited space to adjust policy—due in part to the lack of its effectiveness in this environment—and the importance of anchoring inflation expectations. While they noted the need to build credibility with investors and convey caution to the financial markets, Gifford sees limited signs that the Governing Board is in a hurry to hike rates anytime soon.
  • Brazil –Stocks in Brazil, as measured by the Bovespa Index, returned about 2.5% relative to most global markets. During the week, the government reported that its mid-month inflation reading was 0.44% on a month-over-month basis, which was lower than expected. The underlying data reveal a mixed picture. On the positive side, services inflation remains low and is showing no signs of accelerating, as high unemployment remains a disinflationary factor. On the negative side, electricity prices were a major factor given the increase in tariff surcharges, with another increase likely next month given low water reservoir levels. Food price inflation was also a factor, as global agricultural price increases in the early spring are being passed through to consumers. In addition, there has been a pickup in manufactured goods inflation, which was pressured by supply chain issues around the beginning of 2021. Annual inflation in Brazil has increased to 7.3%, and it could approach 8% around midyear, way above global markets average.
Data Sources: Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.

 

 

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