Global markets were mixed this week, with downs at the beginning of the week with equity markets later rebounding, after two weeks of losses, as investors were able to climb two key walls of worry: the path of the Federal Reserve and the path of the COVID-19 virus.
The S&P 500 Index, one of the most-watched indices globally, recorded its best weekly gain since February, as fears seemed to abate about the new omicron variant of the coronavirus. Most of the benchmarks moved near their record highs, and the S&P MidCap 400 Index reached a new peak on Friday. Information technology stocks drove much of the rally, as solid gains in Apple pushed the market capitalization of the world’s most highly valued public company near USD 3 trillion. Shares of financial firms and utilities lagged but still recorded gains.
Trading started out on a strong note after Dr. Anthony Fauci, the president’s chief medical advisor, said in an interview over the previous weekend that there did not appear to be “a great deal of severity” in the new omicron variant, while cautioning that it was too early to be certain. Later in the week, Rochelle Walensky, the head of the Centers for Disease Control and Prevention (CDC), said that U.S. cases of the disease appeared to be “mild,” although she repeated the need to wait for further evidence.
For their part, bond traders appeared to take the inflation news in stride, perhaps because they had girded themselves for an upside surprise. The yield on the benchmark 10-year U.S. Treasury note fell in the wake of Friday’s report, reversing a part of its increases earlier in the week. (Bond prices and yields move in opposite directions.)
|Index||Friday’s Close||Week’s Change||% Change YTD|
|S&P MidCap 400||2,779.85||77.72||20.52%|
Shares in Europe rebounded in line with other global markets, as fears about the omicron variant of the coronavirus and its potential economic implications subsided. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 2.76% higher. France’s CAC 40 Index climbed 3.34%, Italy’s FTSE MIB Index advanced 3.02%, and Germany’s Xetra DAX Index gained 2.99%. The UK’s FTSE 100 Index advanced 2.38%.
Core euro zone bond yields ended higher. Pfizer and BioNTech shared laboratory results indicating that their booster vaccine could be effective against the omicron strain, helping to allay concerns about the possible economic ramifications and bumping up yields. Yields subsequently pulled back a bit on speculation that the European Central Bank could increase asset purchases via its standard Asset Purchase Program once its emergency purchases end in March 2022.
Gross domestic product (GDP) in the UK expanded 0.1% in October, slowing from 0.6% in September, as the construction industry shrank due to rising costs and supply disruptions, according to official figures.
Chinese stock markets rose in line with global benchmarks, for the week after the central bank cut the reserve requirement ratio (RRR) for banks and November factory-gate inflation cooled, easing inflation concerns. The CSI 300 Index jumped 3.1%, and the Shanghai Composite Index added 1.6%. However, worries about property sector defaults and the withdrawal of more U.S.-listed Chinese companies dampened sentiment after ride-hailing app Didi Global said it would delist from the New York Stock Exchange earlier this month.
Yields on China’s 10-year government bonds fell to 2.861% from the prior week’s 2.926%. The renminbi struck a 3.5-year high of 6.3649 against the dollar on Friday after the People’s Bank of China (PBOC) set a weaker-than-expected midpoint. The central bank allows the value of the renminbi to rise or fall 2% against the U.S. dollar from an official midpoint rate it sets each morning.
Property sector turmoil kept global market investors on edge amid reports of offshore debt restructurings for cash-strapped developers China Evergrande and Kaisa Group. Evergrande announced that it plans to engage with offshore creditors to formulate a restructuring plan. Meanwhile, Kaisa’s recent failure to secure sufficient support from creditors for a bond exchange indicated that a debt recast could be in the offing.
In economic readings from the global market, China’s export growth slowed in November due to currency strength and weaker external demand. However, imports jumped amid the scramble to restock depleted commodities, such as coal. Exports rose 22% year on year in November, decelerating from last month’s 27.1% increase, while imports surged 31.7%, outpacing October’s 19.8% rise. As a result, the trade surplus in the global market for November reached USD 71.72 billion, down from October’s USD 84.54 billion surplus. On the inflation front, China’s consumer price index rose 2.3% in November from a year ago compared with October’s 1.5% gain, reflecting higher food prices and a low base in the prior-year period. But the producer price index rose 12.9% in November from a year earlier, easing from October’s 13.5% increase.
Japanese equities made gains over the week, with the Nikkei 225 Index returning 1.46% in line with other regional and global markets and the broader TOPIX index rising 0.90%. Markets appeared to take ongoing concerns about the omicron variant of the coronavirus and a downgrade to Japan’s third-quarter economic growth in stride. Prime Minister Fumio Kishida set out how his administration plans to carve out a new era for Japan in a policy speech to parliament, with areas of focus including digitalization opportunities, climate change mitigation, and strengthening the start-up ecosystem.
Revised figures for economic growth released by Japan’s Cabinet Office showed that gross domestic product contracted by an annualized 3.6% in the third quarter, more than the preliminary estimate of 3.0%. Private consumption fell by more than expected, due primarily to a surge in coronavirus cases over the summer.
Meanwhile, Bank of Japan data on the Corporate Goods Price Index showed a record 9.0% year-on-year rise in producer prices, due to supply chain disruptions and the rising cost of raw materials. Until companies start passing on higher costs to their customers, the impact on consumer price inflation—which continues to hover around 0%—is likely to be muted.
Other Key Global Markets.
- Brazil – Stocks in Brazil, as measured by the Bovespa Index, returned about 2.5% higher than other global markets. Despite some recent weaker-than-expected economic data, the central bank decided on Wednesday to raise the Selic rate by 150 basis points (1.5 percentage points), from 7.75% to 9.25%. This rate increase was generally expected, as it is consistent with what policymakers projected they would do when they met in late October.
- Mexico – Mexican stocks, as measured by the IPC Index, returned about 1.2% in global markets. The Mexican economy continues to struggle with high inflation despite having a sluggish economic recovery. Earlier this week, the government reported that headline inflation rose 1.14% month over month in November and 7.37% year over year. This is the highest inflation on an annual basis in 20 years.