Global markets were mixed but mostly higher with most markets experiencing pullbacks, which have been infrequent and short-lived as strong economic growth, positive investor sentiment, and extreme amounts of Fed liquidity have combined to produce elevated gains with limited drawdowns along the way
United States
Stocks ended the week higher, rebounding from a sell-off on Monday. The advance was somewhat narrow, however, with much of the gains concentrated in technology and internet-related giants—the so-called FANG+ stocks. Relatedly, growth shares handily outperformed value stocks for the fifth consecutive week on this major global market, leaving them ahead for the year to date, according to Russell benchmarks. Trading volumes were also especially light, with the number of shares trading hands on Thursday at their second-lowest level of the year. Early Monday, the Russell 2000 Index was down 10% from its closing high on March 15, marking its first correction in more than one year.
The major benchmarks recouped almost all their losses on Tuesday, although our traders noted that a particular catalyst for the move higher was hard to identify. Positive news on the housing sector may have been partly responsible, with U.S. housing starts increasing by more than forecast in June, suggesting residential construction is stabilizing despite lingering supply chain constraints and labor shortages.
U.S. Treasury yields followed a similar pattern to the equity benchmarks. Growing fears surrounding the delta variant spurred a steep decline in the benchmark 10-year Treasury note yield at the start of the week, which was exacerbated by technical trading factors that pushed long-term yields on Tuesday morning to their lowest levels since early February.
Investment-grade corporate bond spreads—the extra yield offered over Treasuries and an inverse measure of the sector’s relative appeal—moved wider early in the week on light flows, as concerns regarding the delta variant and inflation weakened sentiment. However, spreads retraced throughout the week, aided by the rebound in equities and a steepening Treasury yield curve. New issuance was relatively limited, but the deals that reached the market were met with strong demand. Likewise, the high yield market experienced some weakness due to delta variant concerns, but sentiment improved as the market’s focus shifted to corporate earnings reports later in the week.
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 35,061.55 | 373.70 | 14.56% |
| S&P 500 | 4,411.79 | 84.63 | 17.46% |
| Nasdaq Composite | 14,836.99 | 409.75 | 15.12% |
| S&P MidCap 400 | 2,672.74 | 55.78 | 15.87% |
| Russell 2000 | 2,209.65 | 46.41 | 11.89% |
Europe
Shares in Europe posted a rise just like other global markets rose on optimism about the upcoming corporate earnings season and the European Central Bank’s (ECB) reaffirmation of its dovish monetary policies. These tailwinds helped to reverse early weakness stemming from fears that the spread of the delta variant of the coronavirus could delay a global economic recovery. In local currency terms, the pan-European STOXX Europe 600 Index ended 1.49% higher. The main European stock indexes also gained, with France’s CAC 40 Index up 1.68%, Italy’s FTSE MIB Index advancing 1.34%, and Germany’s Xetra DAX Index adding 0.83%. The UK’s FTSE 100 Index ticked up 0.28%.
Core eurozone government bond yields fell. Concerns about the spread of the coronavirus and the ECB reiterating its view that inflationary pressures should prove transitory contributed to demand for high-quality government bonds. Peripheral eurozone bond yields largely tracked core markets. UK gilt yields fluctuated, as surging coronavirus cases spurred flows into bonds midway through the week.
The ECB kept its key policy measures unchanged but revised its forward guidance, just like other global market central bankers, indicating that it would keep interest rates “at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2% over the medium term.” The ECB indicated that this process could involve a short period in which inflation goes moderately above this target.
Asia
Chinese stocks recorded were some of the mixed global markets week. The Shanghai Composite Index rose 0.3% and outpaced the large-cap CSI 300 Index, which declined 0.1%, according to Reuters. The People’s Bank of China kept loan rates unchanged for one- and five-year maturities. Analysts see the central bank maintaining stable credit flows to state-owned enterprises, companies, and consumers while monitoring pressures on leveraged borrowers, such as property developers.
Bond yields moved lower on the global markets as the yield on the 10-year sovereign bond shed 4 basis points to end the week at 2.93%. In currency markets, the renminbi edged up 0.2% to close at 6.47 against the U.S. dollar. Most analysts believe China’s stable current account surplus and net long-term capital inflows should provide support for the country’s currency in the near term.
On the global social policy front, China’s State Council unveiled more details of the third-child policy announced in May. The policy would abolish so-called social maintenance fees and sever the link between family size and China’s hukou (household registration) policy, school enrollment, and employment. The policy document also pledged more help with child-care availability, education costs, and women’s labor rights. Analysts said that the newly detailed policy meant that couples would suffer no significant financial or social penalties from having larger families and signaled that China was moving toward becoming a more “family friendly” society.
Japan’s stock markets closed in negative territory on Wednesday, ahead of a long weekend that marked the start of the Tokyo Olympics. The Nikkei 225 Index, the benchmark for the major global market was down 1.63%, and the broader TOPIX Index fell 1.44%. Concerns that the Olympic games would worsen the country’s COVID-19 outbreak weighed on markets. News that support for Prime Minister Yoshihide Suga’s cabinet slid to its lowest level since he took office in September of last year also dampened sentiment. The yield on the 10-year Japanese government bond fell to 0.016%, while the yen depreciated slightly to 110.45 against the U.S. dollar.
The consumer price index (CPI) for the global market nation rose 0.2% from a year earlier in June, the fastest increase since March 2020. The increase was driven largely by higher energy costs, which rose 4.6%. However, the increase in the CPI was much smaller than that of other major global economies due to weak consumption. With inflation far below the Bank of Japan’s 2% target, the central bank is likely to lag its counterparts in scaling back the massive monetary stimulus it has deployed to support a fragile economic recovery.
Exports rose by 48.6% in June from a year earlier, the fourth straight month of double-digit gains and an encouraging sign for Japan’s trade-dependent economy. While the magnitude of the rise was partly attributable to base effects following last year’s coronavirus plunge, U.S. demand for cars and China-bound shipments of chipmaking equipment were notably strong.
Other Key Global Markets.
- Mexico – Mexican stocks, as measured by the IPC Index, rose about 0.2%, a global markets average. During the week, the government reported that inflation in the first half of July was higher than expected. Year-over-year inflation, measured at a rate of 5.75%, was also slightly greater than expected. While the latest data suggest that there is a moderation in recent supply shocks even as the economic recovery gathers steam, Gifford believes that the data are unlikely to dissuade central bank officials from raising the overnight lending rate—probably from 4.25% to 4.50%—when they meet on August 12.
- Peru – Early in the week—after six weeks of voting fraud claims, protests, and new criminal investigations—Peru’s electoral authority, the National Jury of Elections, finally declared socialist teacher Pedro Castillo to be the winner of the presidential election. The first round of voting, which featured a wide field of candidates, was held back in April; in the runoff election, which took place on June 6, Castillo defeated right-wing politician Keiko Fujimori by less than 50,000 votes.
