Global markets remained positive during the week as investors kept a keen watch on the earnings reports and also a view on various economic reports from the globe, including the U.K Gross domestic product report and the fed statement from the federal reserve of the united states.
Stocks built on the previous week’s gains, helped by some strong economic signals and positive earnings surprises. The S&P MidCap 400 Index outperformed and briefly pulled within roughly 0.1% of its all-time intraday high on Friday. The small real estate sector on the global market fared best within the S&P 500 Index as longer-term bond yields fell, and consumer discretionary shares got a boost from Tesla. Communication services shares lagged, weighed down by declines in traditional media providers.
Evidence that supply pressures and inflation might be peaking seemed to be a major factor in stocks regaining momentum to end the week. On Wednesday, the Labor Department reported that core (less food and energy) consumer prices had risen 4.0% for the year ended in September—above the Federal Reserve’s long-term 2% inflation target, but in line with August and consensus expectations. Producer prices, reported Thursday, rose 0.5% for the month (8.6% for the year), down from the 0.7% rise in August and less than consensus forecasts. Global markets investors may have been further reassured by the release of the minutes from the Fed’s September policy meeting, which revealed that officials believed current economic conditions justified keeping short-term interest rates at or near zero for the next couple of years.
Investors also seemed comforted by evidence that the drag on the economy from the delta variant of the coronavirus was easing. On Thursday, the S&P 500 Index recorded its biggest daily gain since March following news that weekly jobless claims had fallen to 293,000, a new pandemic-era low. Airline and cruise ship stocks rose after the White House announced an easing in border controls following the recent decline in coronavirus cases. Wall Street’s momentum carried into Friday after the Commerce Department reported that retail sales had defied expectations for a decline and jumped 0.7% in September—although some of the increase was due to higher prices.
The U.S. Treasury yield curve flattened through most of the week, as investors assessed the latest inflation data and the minutes from the Fed’s September policy meeting. Meanwhile, concerns over the economic outlook caused longer-term yields to retreat, although the yield on the benchmark 10-year U.S. Treasury note retraced part of its decline following Friday’s retail sales report.
Shares in Europe rallied on optimism about the continuing global economic recovery and strong corporate earnings. In local currency terms, the pan-European STOXX Europe 600 Index added 2.65%. Major indexes were mostly higher: France’s CAC 40 Index tacked on 2.55%, Germany’s Xetra DAX Index gained 2.51%, and Italy’s FTSE MIB Index advanced 1.68%. The UK’s FTSE 100 Index climbed 1.95%.
Core euro zone bond yields finished lower compared to other global markets, after a week of volatile trading. Yields across the global markets ticked up on fears of rising inflation, but high-quality government bonds found themselves in demand later in the week, amid concerns that the central bank, closely monitored by global markets, might make a policy error by raising rates too aggressively. Peripheral eurozone bond yields broadly tracked core markets, as did UK gilt yields.
Industrial production in the eurozone fell in August due to supply chain bottlenecks and slowing global trade, Eurostat data showed. Output from factories, mines, and utilities fell 1.6% from July when output increased by 1.4% sequentially.
UK gross domestic product (GDP) in August grew 0.4% month over month as the hospitality industry benefited from the first full month of reopening. Revised estimates indicate that GDP contracted by 0.1% in July due to staff absences linked to the spread of the coronavirus. Although the UK economy has recovered to near the levels last seen before the downturn caused by the coronavirus pandemic, GDP is still about 5% less than it would have been if it had continued to grow at its pre-pandemic pace.
Chinese markets ended nearly unchanged ahead of next week’s quarterly GDP report. The large-cap CSI 300 Index edged up 0.3% and the Shanghai Composite Index dipped 0.6%. China’s economic expansion slowed in the third quarter, Premier Li Keqiang said ahead of Monday’s release but did not elaborate.
Investors have been spooked by a deepening energy crisis as cold weather swept into much of the country and power plants scrambled to stock up on coal, sending prices of the fuel to record highs. Oil and natural gas prices, which have also soared to multiyear highs, have also sent jitters across China, a net energy importer. Several Chinese energy companies are in advanced talks with U.S. exporters and other global partners to secure long-term liquefied natural gas supplies, Reuters reported, underscoring the urgency of the crisis as natural gas prices in Asia have jumped more than fivefold this year and raised fears of power shortages this winter.
China’s policymakers are being forced to choose between supporting the global economy and further stoking producer prices, as the official producer price index jumped 10.7% in September from a year earlier, marking the biggest rise since the government began compiling the data in 1996. Exports in September were surprisingly robust. However, bank loans rose less than forecast, and broader credit growth slowed amid Beijing’s strict controls on property and debt issued by local government financing vehicles. The muted economic data coincided with the release of weak presales data from some of China’s leading developers.
Japan’s stock market returns were positive during a week that saw Japan’s powerful lower house of parliament dissolved, setting the stage for an October 31 general election. Global market investors gained reassurances that new Prime Minister Fumio Kishida is not planning to veer too far away from the policies of his predecessors and does not intend to raise the country’s capital gains tax, a subject that previously spooked markets.
The Nikkei 225 Index rose 3.64%, well above other global markets, while the broader TOPIX Index gained 3.16%. The yen fell to its lowest level in three years, to around JPY 114.3 against the U.S. dollar, prompting Finance Minister Shunichi Suzuki to state that currency stability is very important and that the government will continue to closely watch currency market moves and their impact on the economy. The yield on the 10-year Japanese government bond finished the week broadly unchanged at 0.08%.
Market volatility sparked by rising global market concerns about a prospective capital gains tax increase under Kishida led Japan’s new prime minister to retreat on his plans. Having previously suggested that a change to the country’s capital gains tax would aid in distributing the benefits of economic growth more equally, Kishida said that he does not plan to change the tax for the time being. He does plan, however, to increase support in the tax system for companies that raise wages, in a bid to boost the share of income that goes to labour.
Other Key Global Markets.
- Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about 0.8% within the global markets average. Turkish assets were pressured in the latter part of the week by news that President Recep Tayyip Erdogan, by way of a presidential decree, replaced three members of the central bank’s Monetary Policy Committee. Erdogan gave various reasons for his decision, but one of the policymakers was dismissed specifically because he voted against the central bank’s interest rate cut in September.
- Chile – Chilean stocks, as measured by the S&P IPSA Index, slumped about 4.3%, below most market averages. On Wednesday, the central bank raised its key interest rate from 1.50% to 2.75%. This 125-basis-point rate increase was larger than expected, and the decision was unanimous among policymakers.