Global Markets were mostly down this week as the release of the minutes from the last Federal Reserve meeting revealed that discussions around reducing bond purchases have gained steam among Fed members. Most global markets were also focusing on activities from the east, with concern rising over China’s growing regulations oversight.
U.S Stocks, looked on as the global market’s benchmark pulled back for the week but not before the S&P 500 Index reached a new record high of 4,480 on Monday afternoon, more than double its intraday low of 2,192 on March 23, 2020. Small-cap stocks lagged for the week, with the Russell 2000 Index briefly falling into correction territory, down more than 10% from its March 2021 peak. Energy shares performed worst within the S&P 500, while gains in a wide range of health care stocks boosted the sector.
Worries that growth might be peaking also seemed to hamper sentiment. Stocks fell on Tuesday after the Commerce Department reported that retail sales slumped 1.1% in July, although off an upwardly revised June base. Much of the decline was concentrated in auto sales, which fell 3.9% as consumers baulked at high prices and automakers struggled with the ongoing global semiconductor chip shortage and other supply issues.
U.S. Treasury yields decreased through most of the week, with the yield on the benchmark 10-year Treasury note touching its lowest level since August 5. (Bond prices and yields move in opposite directions.) The broad municipal bond market was little changed through most of the week and underperformed Treasuries. According to our muni traders, one of the week’s most prominent deals—New York City’s sale of over $1 billion in general obligation bonds—had to reprice to higher yields to sell the newly issued debt.
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||2,675.67||-55.80||16.00%|
European stock benchmarks pulled back amid global concerns about the spread of the delta variant of the coronavirus, the situation in Afghanistan, and slowing growth in China. After topping global markets in a series of record highs in the first two weeks of August, the pan-European STOXX Europe 600 Index ended the week 1.48% lower in local currency terms. Country specific indexes also declined. France’s CAC 40 Index fell 3.95%, Germany’s Xetra DAX Index was off 1.14%, Italy’s FTSE MIB Index dropped 2.78%, and the UK’s FTSE 100 Index retreated 1.84%.
Core eurozone bond yields drifted lower in the week as investors favoured lower-risk assets. Germany’s 10-year bund yield was trading around -0.495% on Friday, compared with highs of -0.456% on Monday. In global currency markets, the British pound and the euro both weakened against the U.S. dollar as the greenback benefited from the risk-off environment.
Retail sales in the UK fell 2.5% in July compared with June, weaker than consensus expectations, as poor weather likely weighed on results. Other data pointed to a continued recovery in the UK labour market as employers added 182,000 jobs in July and the unemployment rate fell to 4.7%. In the European Union, officials said gross domestic product grew 2% in the second quarter compared with the previous quarter, while employment grew 0.6%.
Norges Bank, the central bank of Norway, kept its key short-term lending rate at 0% at its August meeting but said it is on track to begin raising rates in September as expected. Policymakers for the global market had signalled in their June forecast that rate hikes would likely begin in the autumn. If the central bank goes ahead with the September rate increase, it would be one of the first developed market economies to begin tightening monetary policy.
Chinese stocks; one of the most-watched in global markets this week; slumped as Beijing’s regulatory clampdown on the technology sector stoked uncertainty about what other sectors the government might target next. Liquor stocks slumped after state media reported that the State Administration for Market Regulation was considering new regulations for liquor companies. Health care companies fell on concerns that industry profits would also be curbed by new regulations.
For the week, the Shanghai Composite Index fell 2.5% while the CSI 300 Index of large-cap stocks shed 3.6% to its lowest close since July 28, according to Bloomberg. In Hong Kong, the benchmark Hang Seng Index fell into a bear market, having lost more than 20% from its peak earlier this year. As of Friday, the stock markets of China and Hong Kong lost more than USD 560 billion in market value.
The global market’s benchmark of the Chinese renminbi currency hit a three-week low of 6.5059 against the U.S. dollar on Friday, weakening past its 200-day moving average and the psychologically key level of 6.50 renminbi per dollar. In the bond market, the yield on the 10-year government bond declined three basis points to close at 2.87%. In credit markets news, government-backed investors said they would recapitalize Huarong Asset Management after the cash-strapped bad debt manager posted a record $15.9 billion loss.
Japan’s stock markets, a global markets watch for the east, finished the week sharply lower, with the Nikkei 225 Index falling 3.45% to close at its lowest level this year. The broader TOPIX index was down 3.03%. News that Japanese carmaker Toyota Motor was to cut production for September by 40% from its previous plan cast doubt on the economic recovery from pandemic lows and led to a sell-off in the shares of automakers and companies producing materials for autos, such as steel and rubber manufacturers.
Japan’s gross domestic product (GDP) expanded by an annualized 1.3% in the second quarter of 2021, ahead of consensus estimates. It followed a 3.7% contraction in the prior quarter. Growth momentum was marginally positive despite pandemic headwinds; the main driver was domestic private demand, helped by strength in private consumption, capital spending, and residential investment, which offset the drag from net exports and inventories. The rebound in Japan’s GDP is much weaker, however than that seen in the other major developed economies, highlighting the country’s struggles to contain the pandemic.
Other Key Global Markets
- Brazil – In Brazil, the Bovespa Index retreated about 2.5% amid weakness in energy and mining companies. Investors are also concerned about the country’s fiscal situation. The government is struggling to find ways of circumventing a mandatory spending cap in the interest of providing additional financial assistance to its citizens. In Chile, the S&P IPSA Index dropped about 1.0% amid weakness in the price of copper, which is one of the country’s main exports. In Mexico, the IPC Index returned about -0.1%, as a sharp decline on Thursday offset earlier gains