Wall Street Global Markets

Global Markets Weekly Review: Week 46, 2021

Global markets are up roughly 25% so far this year, and its path to get here has been nearly stumble-free, with just one 5% dip along the way.  There are clear signs of FOMO (Fear Of Missing Out) as investors pile into high fliers, with outsized gains attracting more attention and buying by those looking to get a piece of the action. Here is how the stocks performed this week.

United States

The major indexes often seen as global benchmarks, ended the week mixed as investors weighed strong economic and profits data against inflation fears, ongoing supply strains, and a rise in coronavirus infections in some regions. Growth stocks handily outpaced value stocks, helping lift the Nasdaq Composite to another record intraday high on Friday. Sector returns also varied widely within the S&P 500 Index. A solid gain in Amazon.com shares and a partial rebound in Tesla boosted consumer discretionary stocks, while strength in Apple supported information technology shares. Energy stocks dropped alongside oil prices after China and the U.S. discussed releasing strategic reserves and U.S. inventories rose for the first time in five weeks.

Several signs that the global economic expansion was regaining momentum seemed to support sentiment early in the week. On Tuesday, the Commerce Department reported that retail sales jumped 1.7% in October, the biggest gain since March, while September’s increase was revised higher. The global Inflation was partly behind the increase—sales at gas stations rose 3.9%, for example—but early holiday shopping also appeared to be at work. Industrial production in October also rose much more than expected (1.6% versus around 0.7%), while a current measure of manufacturing activity in the New York region, reported Monday, came in well above expectations.

U.S. Treasury yields ended Thursday little changed relative to last week’s levels but decreased Friday morning on concerns that Germany could follow Austria in implementing another nationwide lockdown to fight COVID-19. The Treasury rally was broad-based along the yield curve, suggesting that investors expect the Fed to take a somewhat more patient approach toward rate hikes amid potentially slower economic growth. The broad municipal bond market posted negative returns through most of the week.

IndexFriday’s CloseWeek’s Change% Change YTD
S&P 5004,697.9615.1125.08%
Nasdaq Composite16,057.44196.4824.59%
S&P MidCap 4002,870.72-31.4724.46%
Russell 20002,343.16-68.6218.65%

Shares in Europe were little changed compared to other global markets, as a surge in the number of coronavirus infections clouded the economic outlook. In local currency terms, the pan-European STOXX Europe 600 Index ended 0.14% lower. Major European indexes were mixed. Germany’s Xetra DAX Index gained 0.41%, France’s CAC 40 Index added 0.29%, and Italy’s FTSE MIB Index lost 1.42%. The UK’s FTSE 100 Index declined 1.69%.

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STOXX Europe 600 Index, one-year technical performance chart.

Core eurozone bond yields fell on dovish comments from European Central Bank (ECB) President Christine Lagarde. She pushed back against interest rate increases on the grounds that inflation would fade and indicated asset purchases could continue beyond the expiry of the Pandemic Emergency Purchase Programme. Fears of further coronavirus restrictions in Europe after Austria’s announcement of a nationwide lockdown added to downward pressure on core yields. Peripheral eurozone bonds broadly tracked core global markets. UK gilt yields ended the period broadly unchanged following the ECB’s dovish signals.

UK inflation hit the highest level in almost a decade in October, reaching 4.2% on an annual basis—up from 3.1% in September. Higher energy costs were a big part of the uptick in consumer prices. The number of payroll employees increased by 160,000 to 29.3 million between September and October. These developments prompted speculation that the Bank of England (BoE) might increase interest rates in December. BoE Governor Andrew Bailey told a Parliamentary committee that “the labor market looks tight” and that he was “very uneasy about the inflation situation.”

  • China

Chinese markets ended mixed, unlike other global markets, this week as the CSI 300 Index closed flat and the Shanghai Composite Index edged up 0.5%. Disappointing earnings and revenue from e-commerce giant Alibaba Group Holding for the September quarter topped off a week that saw more negative headlines on the economy amid a scramble from real estate firms to raise funds. The People’s Bank of China (PBOC) continued to signal its support for the economy as it unveiled its latest targeted lending program, this time aimed at the domestic coal sector with RMB 200 billion in financing. Analysts have estimated that the central bank’s various programs are slowly adding up to 1% to 2% of China’s gross domestic product (GDP).

Yields on China’s 10-year government bonds held steady for the week at 2.946%, as Beijing showed a willingness to use the PBOC’s balance sheet to steer credit at the margin toward favoured sectors. The yuan weakened to 6.4009 per U.S. dollar, a two-week low.

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China’s 10-year government bonds, technical performance chart.

Outside the real estate sector, China Huarong Asset Management Co., a bad debts manager that has become a test of Beijing’s willingness to bail out troubled state-owned borrowers, said in an exchange filing that it plans to raise USD 6.6 billion via asset sales to state-run firms and dispose of more assets in a bid to stay afloat in the global markets space. Analysts are eyeing Huarong’s actions as a possible template that other highly indebted companies might follow as Beijing stays the course of its deleveraging campaign.

  • Japan

Japan’s stock market returns were muted over a week, unlike other global markets, that saw the government announce a larger-than-expected stimulus package, with the Nikkei 225 Index rising 0.46% and the broader TOPIX index up 0.19%. The Bank of Japan (BoJ) reaffirmed its dovish stance, which led the yen to weaken to around JPY 114.5 against the U.S. dollar from about JPY 113.9 at the end of the prior week. The yield on the Japanese 10-year government bond ticked up slightly to 0.08% from 0.07% the previous week.

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The Nikkei 225 index, one-year technical performance chart.

Prime Minister Fumio Kishida’s government approved a larger-than-expected stimulus package, with record fiscal support of JPY 55.7 trillion (around USD 490 billion). By carrying out the stimulus package with a sense of urgency, Kishida hopes to rebuild Japan’s pandemic-hit economy and put it on a growth path as soon as possible.

Separate data released by the Ministry of Finance showed that exports from the global market rose 9.4% in the year to October, the slowest pace of growth since February when exports fell, and following a year-on-year gain of 13.0% in September. Exports to China remained relatively robust, but growth slowed slightly from the prior month, while exports to the U.S. registered very modest growth. Auto shipments to both countries fell markedly.

Other Key Global Markets.
  • Chile – Chilean stocks, as measured by the S&P IPSA Index, returned about -2.8% in line with other global markets. The equity market fell this week ahead of this Sunday’s congressional elections, in which all seats in the Chamber of Deputies and about half of all Senate seats will be contested.
  • Turkey – Turkish stocks, as measured by the BIST-100 Index, returned about 6.0% for the week, higher than most global markets. On Thursday, the central bank—after holding its regularly scheduled monetary policy meeting—reduced its key interest rate, the one-week repo auction rate, from 16.0% to 15.0%. This rate cut was generally in line with expectations.