Global Markets Weekly Update: February 09, 2024
U.S.
S&P 500 Index breaches 5,000 for first time as narrow advance continues
Most of the major indexes moved higher over the week, with the S&P 500 Index reaching new highs and breaching the 5,000 threshold for the first time. The advance remained relatively narrow, however, with an equally weighted version of the index significantly trailing the standard market-weighted version for the fourth time in five weeks. T. Rowe Price traders also noted a downward trend in the number of stocks that remained above their 50-day moving average. The narrowness may have reflected in part a relative dearth of economic data, leaving investors to focus more on individual companies’ earnings reports.
After a quiet start to the week, the market picked up momentum on Wednesday morning, seemingly helped by the solid reception given to the U.S. Treasury Department’s record $42 billion auction of 10-year notes. The auction calmed fears that the government’s record borrowing levels would push borrowing costs higher, thereby removing some of the Federal Reserve’s power to cut interest rates if needed to stimulate the economy in the coming months. Our traders noted that small-cap stocks found their footing later in the week despite ongoing weakness in biotechnology shares and regional bank stocks. Shares in New York Community Bank plunged after the lender reported weak results in the wake of its acquisition of failed Signature Bank during early 2023’s regional banking turmoil.
Services sector remains in good shape, but input prices rise sharply
The week’s sole economic surprises arguably came on Monday morning in the form of S&P Global’s reading of services sector activity, which jumped unexpectedly to a four-month high and back solidly in expansion territory (from 50.5 in December to 53.4 in January, with readings greater than 50 indicating expansion). The Institute for Supply Management’s rival gauge also indicated solid growth (55.8), but its measure of prices paid for services soared to its highest level in nearly a year. The reading stood in sharp contrast to recent data on prices paid by manufacturers, which have indicated falling prices for many inputs. On Friday, the Labor Department lowered its initial estimate of December consumer inflation, from 0.3% to 0.2%.
Treasury yields increased at the start of the week, spurred higher by the strong jobs report seen last week and Fed Chair Jerome Powell’s comments in a “60 Minutes” TV interview aired the previous Sunday. Powell reiterated that he saw no need to cut rates immediately, which seemed to cause some concern given that the interview was recorded on Thursday, in advance of the surprisingly strong January payrolls report. Our traders reported that a heavy new issue calendar and elevated valuations relative to Treasuries appeared to put additional strain on the tax-free municipal market.
Regional bank issues struggle under commercial real estate concerns
Our traders reported that the overall tone in the investment-grade corporate bond market was firm throughout most of the week, although regional bank bonds remained under pressure because of their exposure to the commercial real estate market. In the high yield market, our traders noted solid demand for new issues as coupon payments returned money to the market and net new issuance remained modest.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
38,671.69 |
17.07 |
2.61% |
S&P 500 |
5,026.61 |
68.00 |
5.38% |
Nasdaq Composite |
15,990.66 |
361.71 |
6.52% |
S&P MidCap 400 |
2,808.47 |
41.32 |
0.97% |
Russell 2000 |
2,010.01 |
47.28 |
-0.84% |
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
In local currency terms, the pan-European STOXX Europe 600 Index ended 0.19% higher on some strong company earnings updates. However, the likelihood of interest rates staying higher for longer curbed gains. Italy’s FTSE MIB rose 1.43%, while France’s CAC 40 Index advanced 0.73%. Germany’s DAX was little changed but remained near its record high. The UK’s FTSE 100 Index slipped 0.56%.
ECB officials warn against early rate cut
Senior European Central Bank (ECB) officials continued to warn against cutting interest rates too early. In an interview with the Financial Times newspaper, Executive Board member Isabel Schnabel argued against an early reduction, citing sticky services prices, a resilient labor market, and attacks on vessels in the Red Sea disrupting supply chains. Chief Economist Philip Lane said in Washington that more evidence was required before policymakers could be confident that inflation would settle at the ECB’s 2% target.
T. Rowe Price’s Wieladek: ECB June rate cut more likely
T. Rowe Price European Economist Tomasz Wieladek believes the ECB is unlikely to lower borrowing costs before June. Financial markets expect a first cut in April, but, in his view, that is too early. The ECB has clearly said it needs more evidence to judge whether inflation will return to the target sustainably. Wieladek notes that all major wage measures are still rising, and policymakers may want to wait for first-quarter data on wages before deciding. He argues that only sharply weaker economic data or a banking crisis caused by a collapse in commercial real estate are likely to prompt an early move.
Resilient UK economy may delay rate cut
The UK economy appeared to be more resilient at the turn of the year, which could reinforce the Bank of England’s (BoE) reluctance to ease policy quickly. A labor market update based on re-weighted survey results estimated the unemployment rate at 3.9% for the three months through November—lower than the 4.2% reported last month and the 4.3% that the BoE forecast for the final quarter of 2023. Separately, a purchasing managers’ index (PMI) for services came in at 54.3 in January, a final reading that was sharply higher than the initial estimate of 53.8. This marked the third consecutive month in which PMI for the services sector was greater than 50, a level that indicates an expansion in business activity.
Japan
Japan’s stock markets gained over the week, with the Nikkei 225 Index rising 2.0% and the broader TOPIX Index up 0.7%. The Nikkei reached a 34-year high on yen weakness, prompting some profit taking, and gains were also capped by a pullback in expectations about a March rate cut by the U.S. Federal Reserve. Reports of strong foreign investor interest in Japanese stocks in January, on the back of a solid earnings season, were supportive of sentiment, as was the latest signal of Bank of Japan (BoJ) monetary policy continuity even after an exit from its negative interest rate regime.
The yield on the 10-year Japanese government bond rose to 0.72%, from 0.68% at the end of the previous week, struggling for direction as the BoJ provided assurances that financial conditions would remain accommodative. On these dovish remarks, the yen weakened to around JPY 149 against the U.S. dollar, from about 148 the prior week.
Weak economic data likely to be factored in to BoJ decision-making
Economic data developments continued to suggest that the BoJ’s achievement of its 2% inflation target, driven by prices rising in tandem with wage growth, was not yet in sight. Nominal wages rose 1.0% year-on-year (y/y) in December, below consensus estimates and following November’s 0.7%. Real, or inflation-adjusted, wages declined 1.9% y/y over the final month of 2023. Reflecting subdued growth in private demand, household spending remained sluggish in December, falling 2.5% y/y, more than expected and coming after a 2.9% contraction over the prior month.
IMF opines on BoJ’s conduct of monetary policy
The International Monetary Fund (IMF) provided its latest opinion on the BoJ’s conduct of its monetary policy, following a policy consultation with Japan that it undertakes once a year. The intergovernmental organization opined that, because upside risks to Japan’s levels of inflation have materialized in the past year, the BoJ’s focus should shift to winding down unconventional monetary policy while maintaining financial stability. The IMF said this in the context of the BoJ’s cautious approach, which it believed was warranted given Japan’s history of deflation and recent mixed economic data prints.
China
Stocks in China rallied in a holiday-shortened week as the government’s latest raft of stimulus measures offset concerns about deepening deflation. The Shanghai Composite Index gained 4.97%, while the blue chip CSI 300 added 5.83% for the week ended Thursday. Markets in mainland China are closed for the Lunar New Year holiday from Friday, February 9, and resume trading on Monday, February 19. In Hong Kong, the benchmark Hang Seng Index rose 1.37%, according to FactSet.
The consumer price index fell 0.8% in January from the prior-year period, accelerating from December’s 0.3% drop and marking its fastest decline since 2009. Food prices led the contraction as pork prices declined. Core inflation—which strips out volatile food and energy costs—rose 0.4%, its weakest rise since June 2023. The producer price index declined 2.5% from a year ago, marking the 16th consecutive month of deflation for factory gate costs.
In other economic news, the private Caixin/S&P Global survey of services activity fell to a weaker-than-expected 52.7 in January from December’s 52.9 as new orders fell, although the gauge stayed in expansionary territory for the 13th straight month. (A reading above 50 indicates expansion from the prior month). The Caixin/S&P composite Purchasing Managers’ Index dipped to 52.5 from 52.6 in December as manufacturing activity remained steady in January.
The People’s Bank of China said in its latest quarterly policy report that it would keep policy support flexible and precise to boost domestic demand. The central bank also forecast that consumer prices would “rebound modestly.” Many economists predict that Beijing will introduce further stimulus measures as the world's second-largest economy grapples with a property market downturn, weak consumer demand, and deflationary pressures.
Other Key Markets
Poland
On Wednesday, the Polish central bank concluded its two-day policy meeting but decided to keep its key interest rate, the reference rate, at 5.75%. Other interest rates controlled by the central bank were also unchanged.
According to the post-meeting statement, policymakers confirmed that “the process of disinflation” is continuing in the Polish economy and noted that “economic activity growth” remained “relatively low” in the fourth quarter of 2023. They also noted that the “labor market situation remains good and unemployment is low.” In addition, central bank officials observed that producer prices were “considerably lower than a year ago…which confirms a reduction of cost pressures.”
While policymakers predicted that annual consumer price index (CPI) growth “is likely to fall significantly” in the first quarter of 2024, they decided to keep interest rates unchanged. They justified their “hold” decision by noting that future inflation developments “are associated with uncertainty, related in particular to the impact of fiscal and regulatory policies on price developments, as well as the pace of economic recovery in Poland.” Other factors that discouraged them from reducing rates included the potential for higher value-added taxes (VAT) on food products, higher energy costs, and “demand pressure…stimulated by elevated growth in nominal wages.” Ultimately, central bank officials concluded that the current level of interest rates is “conducive” to meeting the central bank’s inflation target in the medium term.
Turkey
The previous weekend brought an unexpected leadership change at the central bank. Governor Hafize Gaye Erkan resigned following accusations of family involvement in management of the central bank, and Deputy Governor Fatih Karahan was appointed to be the new Governor.
On Thursday, Karahan made public comments regarding the central bank’s latest inflation report that T. Rowe Price sovereign analyst Peter Botoucharov considered to be somewhat more hawkish than expected. While confirming that policymakers are happy with the monetary policy tightening that took place from mid-2023 through the end of January, as well as the current level of the benchmark one-week repo auction rate (45%), Karahan stressed that monetary policy will be kept tight for “longer than previously envisaged.” He also left open the possibility that policy may be tightened further in case of “marked deterioration” in the inflation outlook. However, there were no changes to the central bank’s year-over-year inflation projections for year-end 2024 (36%), 2025 (14%), and 2026 (9%).
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.
© 2024 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.