Global markets were mixed for a second week running, with data indicating that markets from the west were trading higher while markets in Asia whipsawed through days of decline as Chinese traders remained cautious on concerns of a crackdown on various sectors by the regulators of the world’s largest economy. Apart from this, there were concerns over the rising numbers of coronavirus infections in the global zones, with china hitting past the 131 infections for the first time since September 2020.
United States
U.S. equities led global markets in gaining ground with the market shrugging off the renewed spread of the coronavirus and its possible implications for future economic activity. In the S&P 500 Index, value stocks outperformed their growth counterparts. Most sectors advanced, led by materials. Energy stocks slipped on concerns that oil producers’ discipline on the supply side and worries that the upsurge in coronavirus infections could weigh on global demand. Information technology stocks also lagged, driven by the pullback in the semiconductors and semiconductor equipment industry, which came under pressure from concerns about potential weakness in memory prices.
The U.S Senate passed a roughly USD 1 trillion bipartisan infrastructure package, one of the largest in global markets, including about USD 550 billion in new spending, that aims to rebuild traditional transportation infrastructure, improve access to broadband internet in rural areas, and upgrade the electric grid and water systems. Senate Democrats also approved a USD 3.5 trillion budget resolution, the starting point for a reconciliation bill that would address administration priorities such as improving access to education and increasing support for families with children. The details remain in flux, but this package is likely to include measures that would increase corporate taxes.
| Index | Friday’s Close | Week’s Change | % Change YTD |
| DJIA | 35,515.38 | 306.87 | 16.04% |
| S&P 500 | 4,468.00 | 31.48 | 18.95% |
| Nasdaq Composite | 14,822.90 | -12.86 | 15.01% |
| S&P MidCap 400 | 2,731.47 | 14.11 | 18.42% |
| Russell 2000 | 2,223.11 | -24.65 | 12.57% |
Europe
Shares in Europe advanced as investors focused on the economic recovery and shrugged off worries about surging coronavirus infections in key markets and signs of slowing growth in Asia. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.25% higher. France’s CAC 40 Index gained 1.16%, Germany’s Xetra DAX Index advanced 1.37%, and Italy’s FTSE MIB Index climbed 2.51%. The UK’s FTSE 100 Index added 1.34% on strong corporate earnings and the British pound’s decline relative to the U.S. dollar. UK stocks tend to gain when the pound falls because many companies that are part of the index are multinationals with overseas revenues.
Core eurozone bond yields, closely monitored across global markets, ended roughly level, rising into midweek and retreating on expectations that the European Central Bank could remain dovish for longer. Peripheral eurozone bond yields followed a similar pattern but weakened slightly. UK gilt yields also ended roughly unchanged, although yields rose toward the end of the week as data showed strong economic growth in the second quarter, fueling expectations that the Bank of England (BoE) might begin to withdraw its stimulus sooner.
The UK economy expanded by 4.8% sequentially in the second quarter, driven by a rise in household consumption as lockdown rules were lifted. The quarterly rate was below the BoE’s forecast for 5%. The level of gross domestic product is 4.4% below where it stood at the end of 2019, lagging other advanced economies. UK exports to the EU strengthened in June, rising 1.2% and exceeding the pre-Brexit level of December 2020 for a second month.
Asia
Chinese stocks recorded modest gains against other global markets despite worries that increased government oversight of the country’s technology and private education industries would spread to other sectors. For the week, the large-cap CSI 300 Index added 0.5% and the benchmark Shanghai Composite Index gained 1.7%, according to Reuters. In the bond market, the yield on the 10-year government bond rose 6 basis points to 2.90%. The renminbi currency was unchanged relative to the U.S. dollar. The official trade-weighted currency index—which measures the renminbi’s value against a basket of foreign currencies—was close to a five-year high.
On Wednesday, China released a five-year blueprint calling for increased regulation affecting key parts of the economy. The document signalled Beijing’s intention to draft new laws covering national security, technology, monopolies, and education. In the technology sector, new legislation will cover areas such as online finance, artificial intelligence, big data, and cloud computing.
Japan’s stock market posted relatively flat gains for the week compared to other global markets, with the Nikkei 225 up 0.56% and the broader TOPIX Index finishing 1.40% higher. The country’s deteriorating coronavirus situation kept risk appetites in check as pressure grew on the government to tighten restrictions further. Ahead of the release of second-quarter economic growth data, Bloomberg noted expectations that Japan may have avoided a contraction, citing the global market’s slow vaccination drive as a key factor. Against this backdrop, the yield on the 10-year Japanese government bond ticked up to 0.02%, while the yen was broadly unchanged at JPY 110.29 against the U.S dollar.
Japanese wholesale prices rose in July at their quickest annual rate in 13 years, mainly due to rising import costs amid surging commodity prices. The corporate goods price index, which measures the price companies charge each other for their goods and services, was up 5.6% year over year, following a 5.0% increase in June.
Other Key Global Markets
- Mexico – Mexican equities, as measured by the S&P/BMV IPC Index, returned about 0.7% in local currency terms. As expected across global markets, the central bank raised its key interest rate to 4.50% from 4.25%. The decision was made by a split vote, with three policymakers favouring a rate increase while two preferred no change. On this occasion, officials decided to include updated inflation forecasts—something that they will do on a per-meeting basis going forward, rather than waiting for the quarterly monetary policy report.
- Chile – Stocks in Chile, as measured by the S&P IPSA Index, returned about 3.2% in local currency terms. Early in the week, President Sebastian Piñera announced additional fiscal stimulus to support households and create employment. The package includes an extension of direct household transfers, which were due to expire next month, just weeks before the November presidential elections. According to Finance Minister Rodrigo Cerda, the cost of the package is about USD 7 billion, or 2.3% of Chile’s gross domestic product (GDP).
