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Global Markets Weekly Review: Week 26, 2021

Global markets were on the uptick this week as investors in various markets followed Key data across major global economies. Most markets were following the performance of the S&P 500 which ended the week. Analysts opinion is that growth will likely slow as the economic cycle moves from recovery to expansion. But it will remain robust in our view, supporting the case for improved performance of cyclical sectors and value-style investments.

United States

The S&P 500 Index and Nasdaq Composite Index led global markets tp move to new highs and closed out a fifth consecutive quarterly advance. Large-cap growth stocks led the gains, with the Russell 1000 Growth Index stretching its weekly winning streak to eight. Technology and health care stocks led the gains within the S&P 500, and consumer discretionary stocks were also strong, boosted by a solid rise in Nike shares. Small- and mid-caps underperformed after strong gains the previous week

 Strong first half gains suggest more moderate but positive returns ahead

The Institute for Supply Management’s (ISM’s) gauge of factory activity fell a bit more than expected but still indicated healthy expansion. ISM researchers cited labor and material shortages as preventing even faster growth. Pending home sales data may have been the biggest surprise of the week, jumping 8% in May in contrast to consensus expectations for a slight decrease.

Index Friday’s Close Week’s Change % Change YTD
DJIA 34,786.35 352.51 13.66%
S&P 500 4,352.34 71.64 15.87%
Nasdaq Composite 14,639.33 278.94 13.59%
S&P MidCap 400 2,709.56 -16.92 17.47%
Russell 2000 2,305.76 -28.64 16.76%
Europe

Shares in Europe were down slightly, a surprise on global markets but backed on worries that inflationary pressures, seen across major markets globally might bring forward interest rate increases. Another headwind was the spread of a highly infectious variant of the novel coronavirus, which clouded the outlook for an economic recovery. In local currency terms, the pan-European STOXX Europe 600 Index slipped 0.18%. Major indexes were mixed. Germany’s Xetra DAX Index rose 0.27%, while France’s CAC 40 Index fell 1.06% and Italy’s FTSE MIB Index declined 0.89%. The UK’s FTSE 100 Index gave up 0.18% of its value.

Core eurozone government bond yields fell, reflecting growing fears about the spread of the delta variant of the coronavirus in Europe. Comments from European Central Bank (ECB) President Christine Lagarde highlighting the risk of virus variants and their potential effects on the eurozone economic recovery also weighed on yields. Peripheral bond yields broadly tracked core markets. UK gilt yields likewise fell in tandem with core markets. Bank of England Governor Andrew Bailey reiterated the view that the uptick in UK inflation would prove transitory appeared to contribute to the decline in gilt yields.

The eurozone’s index of consumer prices fell to 1.9% in June from 2.0% in May, according to a first estimate from Eurostat. Inflation has ticked up for six consecutive months and is near the ECB’s target of “below but close to 2.0%.” The euro area jobless rate fell to a seasonally adjusted 7.9% in May from 8.1% in April but was up from 7.5% in May 2020. IHS Markit’s eurozone purchasing managers’ index (PMI) came in at 63.4 in June—above the flash estimate and its highest reading on record—suggesting that the expansion in the manufacturing sector was even stronger than initially estimated. (PMI readings greater than 50 indicate an expansion in activity levels.)

Asia

Chinese stocks, like markets in Asia went against the global markets trend for the week. Both the Shanghai Composite Index and large-cap CSI 300 Index posted a weekly loss after each index recorded its biggest one-day percentage drop since early March on Friday, Reuters reported. Reports of profit-taking by domestic investment funds and open market operations undertaken by China’s central bank to drain funds from the financial system may have contributed to the declines, according to T. Rowe Price traders.

Investors had expected ample liquidity ahead of China’s celebration Thursday of the ruling Communist Party’s 100th anniversary, especially after a cash injection the previous week. The seven-day interbank rate rose to a level about 30 basis points above the official target, but analysts said the rise more likely reflected market pressures at quarter-end and did not necessarily signal tighter policy. In its latest policy meeting, the People’s Bank of China said that it would “keep the macro leverage ratio basically stable,” suggesting that the central bank would not tighten policy in the near term.

Japan’s stock market returns were negative for the week, unlike most global markets as concerns about rebounding coronavirus infection rates eroded optimism about progress in the country’s vaccination drive. The Nikkei 225 Index fell 0.97% while the broader TOPIX Index finished 0.32% lower. The yen weakened to its lowest level since February 2020, closing the week at JPY 111.43 against the U.S. dollar. The yield on the Japanese 10-year government bond declined to 0.046%

Japan’s Nikkei 225 Index, one year technical performance chart

Other economic data were more negative. Industrial production contracted by more than expected, falling 5.9% month on month in May amid expectations of a 2.1Chilean stocks, as measured by the S&P IPSA Index, returned about -0.9%. The financial markets were closed on Monday for a holiday. The contraction was due primarily to carmakers and other manufacturers cutting back on production due to the global semiconductor chip shortage. Meanwhile, Japan’s unemployment rate rose to 3.0% in May, the highest level since December 2020 in a major global economy. This compares with 2.8% in the prior month. Most sectors saw lower employment, including manufacturers, logistics, and finance.

Other Key Global Markets
  • Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about 0.2%. Equities were fairly, unlike major global markets, flat as the second quarter came to an end and as investors were cautious due to emerging corruption allegations regarding the government’s purchases of coronavirus vaccines. Elevated inflation remains a chief concern for investors in Brazil, and while the central bank has begun raising interest rates in response. During the week, the country’s electricity regulator announced a 50% increase in a tariff surcharge starting in July.
  • Chile – While the equity market was little changed for the week, the peso strengthened against the U.S. dollar following news that the ministry of finance would step up its sales of dollar-denominated assets from Chile’s sovereign wealth fund to help finance the USD 10.8 billion fiscal package announced at the end of May to aid the economic recovery. The package, which the legislature approved in June, includes support for households, such as a universal emergency basic income for most citizens; smaller businesses, such as greater tax benefits; and the health system’s broad coronavirus vaccination efforts.
Data Sources: Thomson Reuters, Barrons (Dow Jones & Company), Bloomberg, The Economist Europe, Brazil Business Post, Edward Jones Financial Markets Report.