Global Markets Weekly Review: Week 22, 2021

Global markets experienced a lift during the week buoyed by the United State’s May employment report  which showed job growth was improving, but not as quickly as anticipated by analysts. Investors were also looking at the growing coronavirus infections globally and the various measures China was taking to curb various financial vices in the country..

United States

The major indexes closed moderately higher than other global markets in a shortened trading week, with markets closed Monday in observance of Memorial Day. Energy shares performed best within the S&P 500 Index as oil prices reached their highest level in two years. Consumer discretionary shares lagged, weighed down by a decline in Tesla.

The strength of the economic recovery remained in the spotlight, with Friday bringing the closely watched monthly nonfarm payrolls report. The Labor Department reported that employers added 559,000 jobs in May, somewhat below consensus forecasts of around 650,000, while the labor force participation rate ticked down to 61.6% from 61.7%. On the positive side, the employment-to-population ratio—considered by some to be more important to Fed officials—ticked higher, and the unemployment rate fell more than expected, from 6.1% to 5.8%. Average hourly earnings rose 0.5%, above consensus and indicative of a tighter labor market.

After increasing early in the week, the yield on the global benchmark 10-year U.S. Treasury note fell back on Friday following the May payrolls report. (Bond prices and yields move in opposite directions.) The broad municipal bond market outperformed Treasuries over much of the week, and our muni traders reported improvement in secondary market trading volumes as the week progressed. According to the latest data from Lipper, municipal bond funds industrywide received net inflows of nearly USD 1 billion for the week ended June 2, including strong flows into tax-exempt high yield portfolios.

Europe

Shares in Europe rose amid optimism about the prospect of an economic recovery. However, worries that central banks might begin withdrawing stimulus sooner than expected because of inflationary pressures curbed equities’ advance. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.80% higher. Italy’s FTSE MIB Index climbed 1.59%, Germany’s Xetra DAX Index gained 1.11%, and France’s CAC 40 Index added 0.49%. The UK’s FTSE 100 Index rose 0.66%.

Eurozone inflation increased 40 basis points sequentially to 2% in May—above the ECB’s stated target of “below but close to 2%.” Higher energy costs were a big part of the increase in consumer prices. Core inflation, which excludes volatile food and energy costs, ticked up to 0.9% from 0.8%.

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Final purchasing managers’ survey data for the eurozone confirmed a revival in the service sector that was accompanied by booming manufacturing activity. IHS Markit said the data indicated that gross domestic product (GDP) “should rise strongly in the second quarter.” Meanwhile, retail sales in the bloc fell in April by a greater-than-expected 3.1% sequentially, although they rose 23.9% year over year on a calendar-adjusted basis. Unemployment in Germany fell more than expected in May.

Asia

Chinese stocks retreated, having one of the weakest global markets in returns, after recording three weeks of gains. The large-cap CSI 300 Index shed 0.7% and the benchmark Shanghai Stock Exchange edged down 0.2%, according to Reuters. Foreign investors bought USD 8.7 billion of Chinese stocks in May, the highest single month this year, Reuters added. In the bond market, the downtrend in yields took a breather. The yield on the 10-year Chinese government bond (CGB) rose 2 basis points to 3.11%, a relatively high level compared with other major government bond yields. Over the last six months, Bloomberg’s local currency index for CGBs returned 3.4%, while the spread over comparable 10-year U.S. Treasury yields tightened almost 100 basis points.

Japan’s stock market returns were some of the most mixed for the week in global market trading, with the Nikkei 225 Index falling 0.71% and the broader TOPIX Index gaining 0.60%. Sentiment remained weak following the government’s extension of the coronavirus state of emergency in Tokyo, Osaka, and seven other prefectures by three weeks to June 20. The yield on the Japanese 10-year government bond was little changed at 0.08%, while the yen weakened to close at around JPY 110.18 against the U.S. dollar.

Japan’s household spending rose 13.0% year on year in April after a 6.2% rise in March. The increase was the biggest since comparable data became available in January 2001. Consumers sought out beauty treatments, dining, accommodation, and domestic tourism packages. Autos and apparel also contributed.

Other Key Global Markets

• Brazil – Stocks in Brazil, as measured by the Bovespa Index—which reached an all-time high during the week—returned about 3.5%, a higher average compared to other global markets. The market was closed for a holiday on Thursday. Equities—which advanced 9.64% in U.S. dollar terms in May, as measured by MSCI—continued to climb in the first week of June, supported in part by recent strength in the Brazilian real versus the dollar, as well as tighter credit spreads in the fixed income market. Also, recent economic data have been encouraging, including the 1.2% quarter-over-quarter reading for first-quarter GDP, which was stronger than expected.
• Mexico – Mexican stocks, as measured by the IPC Index, returned about 0.9%, a fairly flat average compared to other global markets. During the week, the Mexican central bank released its quarterly inflation report, which included fresh economic forecasts. Policymakers now expect GDP growth this year to be 6.0% versus 4.8% in the previous report.

Data Sources: Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.