Global Markets Weekly Update: April 29, 2022
U.S.
S&P 500 falls to lowest close of 2022 as Amazon weighs
The major indexes endured a fourth consecutive week of losses, as growth fears were compounded by some disappointing earnings results from Amazon.com, which has a heavy weighting in many prominent indexes. The S&P 500 Index moved further into correction territory, down roughly 14% from its recent peak, while the technology-heavy Nasdaq Composite and small-cap Russell 2000 Index fell further into bear markets, down roughly 24% from their highs. Energy stocks outperformed within the S&P 500 after Russia announced that it was cutting off natural gas exports to Poland and Bulgaria.
The geopolitical and macroeconomic concerns that have loomed large over sentiment in recent weeks remained in place, but T. Rowe Price traders noted that there were few headlines to decipher, at least early in the week. Major earnings reports from Microsoft and Google’s parent company Alphabet largely offset each other in Wednesday trading, with positive guidance from the former helping compensate for an earnings disappointment from the latter.
A similar dynamic appeared to be set up for Friday trading, following conflicting earnings reports the previous evening from two other mega-cap companies, Amazon and Apple. Amazon shares plunged 14% after the company surprised investors with its first quarterly loss since 2015, due in part to weaker online sales. Apple stock originally rose on the news that it recorded record revenue in the previous quarter, but cautious guidance for the current quarter because of supply chain problems seemed to drain the gains later in the session.
Economy shrinks due to inventory drawdown, record trade deficit
The week’s economic data offered ammunition for both those predicting “stagflation” or easing price pressures in the months ahead. The biggest data surprise may have been the Commerce Department’s advance estimate showing that the economy contracted at annualized rate of 1.4% in the first quarter, well below consensus expectations of a roughly 1.0% expansion. Falling inventory investment and a record trade deficit were mostly to blame, however, and most economists agreed that solid consumer spending (up 2.7%) and business investment (up 7.3%, well above expectations) suggested that it was too early to conclude that the data signaled the onset of a recession—often defined as two consecutive quarters of economic contraction.
Other economic reports also indicated continued expansion. Core capital goods orders (excluding defense and aircraft) rose 1.0% in March, double consensus expectations, while personal spending rose 1.1%, beating expectations for an increase of 0.7%. Some inflation data were arguably encouraging. The year-over-year increase in the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, eased to 5.2% in March, its first deceleration in over a year. The year-over-year headline PCE measure advanced to a 40-year high of 6.6% but also missed estimates. Reflecting the tight labor market, however, the employment cost index rose 1.4% in the first quarter, above expectations.
Crossover buyers move into munis
After decreasing early in the week, the yield on the benchmark 10-year U.S. Treasury note ended near where it began, seemingly pushed higher on Friday, in part, by the favorable consumer spending data. (Bond prices and yields move in opposite directions.) Cash outflows from municipal bond portfolios industrywide continued to hamper the tax-exempt market, which posted modestly negative returns and underperformed Treasuries through most of the week. However, our traders reported that, as a result of the market’s continued underperformance versus U.S. government debt, more attractive municipal-to-Treasury yield ratios led to greater demand from crossover buyers—those who typically invest in taxable bonds.
According to our traders, the investment-grade corporate bond market traded lower as geopolitics, a drop in consumer confidence, and mixed corporate earnings results weighed on sentiment. New issuance was subdued and fell short of expectations. Our traders also noted that recent new issues and liquid bonds outperformed older bonds later in the week. High yield bonds also moved lower, with higher-rated bonds faring better than lower-quality issues, whil increases in commodity prices bolstered the performance of the energy segment. A few new deals were announced in the early part of the week.
Our traders also observed that weakness in the bank loan market felt more attributable to buyers pausing rather than significant selling. They noted, however, that the market continued to see sellers of higher-dollar price and lower-quality loans looking to take advantage of attractive values in high yield bonds. Building products and industries more exposed to inflationary pressures underperformed as investors reduced exposure to those market segments.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
32,977.21 |
-834.19 |
-9.25% |
S&P 500 |
4,131.93 |
-139.85 |
-13.31% |
Nasdaq Composite |
12,334.64 |
-504.65 |
-21.16% |
S&P MidCap 400 |
2,500.29 |
-82.92 |
-12.02% |
Russell 2000 |
1,864.10 |
-76.56 |
-16.98% |
This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Frank Russell Company (Russell) is the source and owner of the Russell index data contained or reflected in these materials and all trademarks and copyrights related thereto. Russell® is a registered trademark of Russell. Russell is not responsible for the formatting or configuration of these materials or for any inaccuracy in T. Rowe Price's presentation thereof.
Europe
Shares in Europe pulled back on concerns about slowing economic growth, high inflation, and tightening monetary policy. Encouraging quarterly earnings reports may have helped to moderate these losses. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 0.64% lower. Major market indexes were mixed. Germany’s DAX Index gave up 0.31%, while France’s CAC 40 Index slid 0.72%. Italy’s FTSE MIB Index was little changed. The UK’s FTSE 100 Index advanced 0.30%.
Core eurozone bond yields fell, as mounting concerns about inflationary pressures and weakening economic growth appeared to increase demand for high-quality government bonds. UK government bond yields broadly tracked core markets. Peripheral eurozone bond yields broadly rose.
EU prepares more sanctions on Russia
European Commission Executive Vice President Valdis Dombrovskis told UK newspaper The Times that Brussels is working on a sixth package of sanctions against Russia. These actions could include some form of oil embargo or other mechanism that would target Russia’s oil revenue while seeking to minimize the potential “collateral damage” to the European Union (EU), which relies heavily on energy imports from the country. Meanwhile, Russian state energy company Gazprom stopped gas supplies to Bulgaria and Poland for failing to pay in rubles, as decreed by a new law.
Eurozone economic expansion slows; inflation at record high
The eurozone economy expanded 0.2% sequentially in the first quarter, as surging commodity prices and disruptions related to Russia’s invasion of Ukraine weighed on the pace of growth. This preliminary estimate was less than the 0.3% forecast by the European Commission just before the war started. Germany’s gross domestic product (GDP) grew 0.2% in the first quarter, while France’s economy stagnated. Italy’s GDP contracted 0.2%. Inflation in the euro area accelerated to 7.5% in April, reaching the highest level since the euro was launched.
Sweden central bank hikes rates for first time since 2019
With an eye toward quelling inflation, Sweden’s central bank unexpectedly raised interest rates for the first time since 2019 and announced that it would slow the pace of its asset purchases in the back half of the year. The Riksbank increased its main repurchase rate by a quarter-point to 0.25% and signaled the potential for two or three additional rate hikes this year.
Macron reelected French president
Emmanuel Macron won a second term as president of France, defeating Marine Le Pen, leader of the far-right National Rally party. Macron took about 58.5% of the vote, while Le Pen garnered 41.45%. About 28% of voters abstained, the most since 1969. France’s parliamentary elections are slated for June.
Japan
Stocks in Japan fell over the week, with the Nikkei 225 Index down 0.95% and the broader TOPIX Index finishing 0.29% lower. The Bank of Japan (BoJ) remained dovish at its April monetary policy meeting, leaving interest rates unchanged at their near-zero levels and maintaining the scale of its asset purchases. The central bank strengthened further its easing stance by announcing that it will carry out fixed rate bond buying every business day, instead of on an ad hoc basis. This exerted downward pressure on 10-year Japanese government bond yields, which fell to 0.21%, from 0.24% at the end of the previous week. The BoJ’s decision signaled a continued divergence from the monetary policy tightening pursued by other major central banks and sent the yen sharply lower—the currency finished the week near a 20-year low of JPY 130.39 against the U.S. dollar, compared with the prior week’s JPY 128.47.
BoJ raises outlook for inflation, revises down economic growth forecasts
The BoJ raised its outlook for inflation, forecasting that the consumer price index (CPI) will rise by a median 1.9% on the previous year in the 2022 fiscal year compared with the 1.1% increase it predicted in January of this year. It attributed this to the impact of a significant rise in energy prices but said that a likely increase in the CPI to around 2% during the fiscal year is likely to be temporary. The central bank revised down its forecasts for economic growth over the same period from 3.8% year on year to 2.9%. Factors cited included the resurgence of the coronavirus, rising commodity prices, and a slowdown in overseas economies.
Government announces new aid package to mitigate impact of rising prices
Prime Minister Fumio Kishida’s government announced new measures—amounting to around JPY 6.2 trillion (USD 48.5 billion), according to Bloomberg—to cushion the impact of soaring prices on companies and consumers and support the economy’s still-fragile recovery from the coronavirus pandemic. These include raising the current subsidy for oil wholesalers, as well as support for small and medium-sized companies and low-income households. The government will also assist in the more diversified procurement of raw materials to curb Japan’s dependence on Russia.
On the economic data front, industrial production in March showed signs of upward movement, with the production machinery, chemicals, and transport equipment (excluding motor vehicles) segments contributing to the increase. The unemployment rate edged down in March, as the lifting of coronavirus restrictions contributed to tighter labor market conditions.
China
Chinese markets ended on a mixed note amid reports that the country's Politburo pledged to boost economic stimulus and called for the “healthy development” of the technology sector. The broad, capitalization-weighted Shanghai Composite Index fell 1.3%, and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, ended roughly flat, recouping earlier losses spurred by concerns about the government’s zero-tolerance approach to the coronavirus.
News from the Politburo meeting contained few new details about how China will support the economy but was consistent with recent reports focused on infrastructure, tax cuts, and consumption support, according to T. Rowe Price analysts. The 25-member Politburo is the Chinese Communist Party’s top decision-making body. The Politburo meeting was chaired by China’s President Xi Jinping, which appeared to signal greater weight to the group’s latest pronouncements compared with earlier statements of official support.
Concerns about the steep cost of China’s zero-tolerance policy regarding the coronavirus continued as the government stepped up containment measures and rolled out mass testing in Beijing and Hangzhou. Shanghai’s monthlong lockdown continued to reverberate as many foreign residents have fled and factories struggled to reopen, though officials have started to allow people to leave their homes in a growing number of residential areas. Several manufacturers with China operations, including GE, South Korean chipmaker SK Hynix, and carmaker Mercedes Benz, warned of supply chain disruptions and an uncertain business outlook due to the restrictions.
China’s government bonds firmed on hopes of easing liquidity. The yield on the 10-year Chinese government bond declined to 2.854% from 2.88% a week ago. The yuan softened to 6.6143 against the U.S. dollar from 6.47 last week. The yuan fell roughly 4.2% against the dollar in April, its biggest monthly drop on record, as foreign investors sold Chinese assets in favor of higher-yielding U.S. bonds, according to the Financial Times. China’s central bank, which seeks to deter large bets on the currency, allows the yuan to move 2% in either direction of a daily trading band midpoint it sets each morning. The central bank set the band’s midpoint at a weaker level than markets expected last week.
Other Key Markets
Peru
Early in the week, President Pedro Castillo presented legislation to Congress that calls for a public referendum to change the country’s constitution—something that he supported during his campaign last year. The bill proposes a single question for the referendum: "Do you approve of the call for a Constituent Assembly to draw up a new political constitution?"
According to T. Rowe Price emerging markets sovereign analyst Aaron Gifford, this action seems to stem from Castillo having no more room to maneuver even as the social situation in the country has deteriorated on the back of street protests mostly due to high food and energy costs. While the idea of Peru needing a new constitution has some merit, Gifford believes that the likelihood of it becoming a reality is relatively low, due in part to the fact that Castillo's Peru Libre party holds only 25% of seats in the unicameral legislature and still falls short of a simple majority when including other left-leaning parties. A recent survey by Ipsos also shows that a new constitution does not feature very prominently among Peruvian voters’ priorities, suggesting a referendum may not be successful for the president.
Brazil
Stocks in Brazil, as measured by the Bovespa Index, returned about -2.4%. On Wednesday, the government reported that one-month inflation through mid-April was measured at 1.73%. While this was slightly lower than an expected reading of 1.84%—the first downside surprise for inflation in months—the year-over-year 12% inflation rate is not only a new high for the current economic cycle but also the highest inflation reading in about 20 years.
Beyond the headline numbers, it seems that the very high monthly print primarily reflected non-core price shocks, with food and energy cost increases responsible for about 70% of the one-month increase. While inflation has not shown clear signs of peaking on a sequential basis, a recent electricity price cut could provide some disinflation. Lower commodity prices in local currency terms would have been a positive, too, but recent depreciation of the real versus the U.S. dollar—in anticipation of an aggressive pace of U.S. Federal Reserve interest rate increases—has eliminated a lot of the disinflation there.
The mutual funds referred to in this website are offered and sold only to persons residing in the United States and are offered by prospectus only. The prospectuses include investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
This material is provided for general informational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision-making.
© 2022 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc. All other trademarks shown are the property of their respective owners. Use does not imply endorsement, sponsorship, or affiliation of T. Rowe Price with any of the trademark owners.
T. Rowe Price Investment Services, Inc., Distributor.