Major Global markets edged slightly downward last week, with the U.S markets leading as some benchmark indices logged their first five-day losing streak since mid-February. In reality, major global indexes are barely down on the month and a little over 1% off record highs.
The leaders in global market indices retreated over the shortened trading week—markets were closed on Monday in observance of Labor Day. The small real estate sector led the declines in the S&P 500 Index as longer-term interest rates increased, while consumer staples and utilities stocks held up best. The small-cap Russell 2000 Index fared worst after two consecutive weeks of outperforming the large-cap benchmarks, and value stocks trailed growth shares.
On Thursday afternoon, President Joe Biden announced that all large employers must require workers to either be vaccinated or submit to weekly testing, while vaccination would be mandatory for federal workers and contractors. While evidence continued to emerge that the latest coronavirus wave was peaking, health officials warned that the return to school and Labor Day social gatherings might derail progress.
Trading activity was relatively quiet in the municipal bond market during the holiday-shortened week, and steady cash flows continued to reinforce low yield levels. They also indicated that demand for longer maturities in the secondary market was somewhat soft as investors appeared to be waiting for dealers to clear more inventory of long-term securities.
The high yield global market was also fairly quiet, as concerns over economic growth and the Federal Reserve’s eventual tapering of its monthly asset purchases contributed to a weaker economic backdrop. Conversely, the investment-grade corporate bond primary calendar was active, with the number of new deals setting a daily record at the start of the short week.
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||2,686.53||-74.02||16.47%|
Shares in Europe weakened amid uncertainty about the global market economic outlook, the continuing coronavirus pandemic, and central bank policy. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.19% lower. Major stock indexes also fell. Germany’s Xetra DAX Index eased 1.09%, Italy’s FTSE MIB Index slipped 1.45%, and France’s CAC 40 Index lost 0.39%. The UK’s FTSE 100 Index declined 1.53%.
Core eurozone bond yields ended slightly higher compared to other global markets, paring earlier gains, after European Central Bank (ECB) President Christine Lagarde said the decision by the central bank to trim its emergency bond purchases was not tapering. Peripheral eurozone bond yields broadly followed yields in core markets. UK gilt yields rose amid growing expectations that the Bank of England (BoE) may start raising short-term interest rates.
The ECB also raised its forecast for 2021 economic growth to 5.0% from 4.6% and its inflation projection to 2.2% from 1.9%. The central bank’s projections showed inflation peaking at 3.1% in the fourth quarter and then slowing to 1.7% in 2022 and 1.5% in 2023.
The European Commission (EC) said it planned to launch green bonds in October to fund environmental projects as part of an effort that aims to raise up to EUR 250 billion through 2026. Eleven member states have already issued green bonds, while another four plan to do so.
Chinese stocks were better compared to other global markets, posting gains for the third straight week. The Shanghai Composite Index gained 3.4% in global markets and the CSI 300 Index of large-cap stocks rallied 3.5%, according to Reuters. Strong trade data and an unexpected yet reportedly candid phone conversation between the U.S. and Chinese presidents lifted investor sentiment. The yield on China’s 10-year government bond increased and ended the week at 2.89%, while the renminbi currency edged up 0.2% versus the global benchmark U.S. dollar to 6.4423 per dollar, its strongest level since mid-June, according to Bloomberg.
China’s merchandise exports in August increased 25.6% across global markets over a year earlier, while imports climbed 33.1%, according to the country’s statistics office. The trade data beat forecasts despite renewed lockdowns across the country following a recent outbreak of the delta coronavirus, which led to a two-week closure of a key container port in the southern city of Ningbo in August. China’s monthly trade surplus rose to USD 58.34 billion in August, up from July’s USD 56.58 billion.
Japanese equities extended their gains over the week, being the second global market posting gains, buoyed by political optimism and expectations of further fiscal stimulus under a new prime minister, following the decision by current Prime Minister Yoshihide Suga to step down. The Nikkei 225 Index returned 4.30% while the broader TOPIX index rose 3.78%. While the government again extended its coronavirus state of emergency measures, the sentiment was boosted by the announcement of plans to ease restrictions once most of the population has been vaccinated, with relaxation expected to commence around November.
Second-quarter gross domestic product growth was revised up to an annualized 1.9% from a preliminary reading of 1.3%. The main driver on the global market was an upward revision to government consumption, while both private non-residential investment and private consumption were subject to moderate upgrades. These were slightly offset by a larger-than-anticipated drag from private inventories.
Separate data showed that household spending grew by 0.7% year on year in July compared with expectations of a 2.4% rise, as a resurgence in COVID-19 cases hindered consumer activity. A positive contribution came largely from transportation, followed by a smaller degree of support from food and beverage. Most other categories dragged, led by furniture and household goods, as well as health care.
Other Key Global Markets.
- Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about -2.0%. Late last week, the government reported that the consumer price index (CPI) in August increased 1.1% month over month and 19.25% year over year. In response to the higher CPI, Turkey’s Treasury and Finance Ministry on Monday raised its year-end 2021 inflation estimate to 16.2%, which brings the government’s projection in line with market expectations of roughly 15.5% to 16.5% year-over-year inflation by the end of 2021. Some believe the central bank will follow suit and revise its own inflation estimate by taking into account higher food prices and industrial and supply chain disruptions.
- Brazil –Stocks in Brazil, as measured by the Bovespa Index, returned about -2.1%. Worse-than-expected inflation data for August were also a contributing factor. The government reported that inflation rose 0.87% month over month in August, with core prices, including services prices—which are closely watched by the central bank—surprising to the upside. While the inflation acceleration might have started out as price shocks involving food, fuel, and electricity, many believe there is clear evidence of second-order impacts on inflation.