Global Markets Weekly Update: March 08, 2024
U.S.
Stocks mixed as long-term rates fall on cooling labor market
Growing hopes that the Federal Reserve might begin cutting interest rates sooner rather than later appeared to help bring the large-cap S&P 500 Index and S&P MidCap 400 Index to new record intraday highs, alongside the Nasdaq Composite before pulling back late Friday. Small-cap and value shares outperformed, while mega-cap tech shares lagged due in part to a decline in Apple following reports about slowing iPhone sales in China. Notably, Danish pharmaceuticals company Novo Nordisk, which has seen robust demand for its diabetes and weight loss drugs, displaced Tesla on Thursday as the 12th biggest public company by market capitalization.
The week began on a down note—on Tuesday, the S&P 500 fell by more than 1% for the first time since mid-February—which T. Rowe Price traders attributed in part to disappointing policy news out of China (see below). Stocks regained momentum at midweek, however, seemingly on the back of easing demand and inflation pressures domestically.
Workers more reluctant to quit as unemployment rises
On Wednesday, the Fed reported in its periodic Beige Book survey of regional economic conditions that consumers were showing more sensitivity to rising prices, while the Labor Department said that job openings fell in January to their lowest level in three months. The quits rate—the share of workers leaving jobs voluntarily, typically considered a good measure of workers’ perception of the ease of finding a new job—also fell to its lowest level since August 2020, early in the rebound from the pandemic.
Friday’s jobs report also seemed, at least initially, to reassure investors about the labor market. Employers added 275,000 jobs in February, more than consensus forecasts of around 200,000, but January’s gain was revised significantly lower, from 353,000 to 229,000. Moreover, the unemployment rate rose unexpectedly from 3.7% to 3.9%, its highest level in over two years. In a positive sign for inflation, average hourly earnings rose 0.1%, below expectations and down sharply from January’s 0.5% increase.
Powell says Fed confidence to begin rate cuts “not far”
Fed Chair Jerome Powell testified before Congress at midweek. While the testimony was largely seen as reiterating previous Fed talking points, according to our traders, it did offer some less hawkish takeaways on the timing of the path of rate cuts. In particular, Powell stated that policymakers were “not far” from having the confidence that inflation’s downtrend will be sustained, enabling them to begin cutting rates. As a result, futures markets ended the week pricing in a somewhat higher (71.0%, according to the CME FedWatch Tool) chance of a cut at the Fed’s policy meeting by June.
Powell’s comments and the downside economic surprises helped push the yield on the benchmark 10-year U.S. Treasury note to its lowest intraday level (4.03%) since February 2. (Bond prices and yields move in opposite directions.) Tax-free municipal bonds lagged Treasuries over the week, bringing the relationship between muni and Treasury yields closer to historical averages. Yet primary issuance was relatively subdued, and the deals that reached the market were met with strong demand.
Our traders noted another week of heavy issuance in the investment-grade corporate bond market, with USD 51 billion in total supply surpassing expectations of USD 30 billion to USD 35 billion. Technical conditions were supportive for high yield bonds, with coupon payments and tenders adding significant cash to the market, while net new issuance remained modest.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
38,722.69 |
-364.69 |
2.74% |
S&P 500 |
5,123.69 |
-13.39 |
7.42% |
Nasdaq Composite |
16,085.11 |
-189.83 |
7.15% |
S&P MidCap 400 |
2,952.39 |
41.73 |
6.14% |
Russell 2000 |
2,082.71 |
6.32 |
2.74% |
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 gained ground for the seventh straight week, hitting a record high on the way to a 1.14% gain. Among the major stock indexes, Italy’s FTSE MIB gained 1.43%, France’s CAC 40 Index added 1.18%, and Germany’s DAX ticked up 0.45%. The UK’s FTSE 100 Index declined 0.30%.
Ten-year government bond yields for Germany, Italy, and France declined after the European Central Bank (ECB) left its monetary policy unchanged and signaled that interest rates could be cut in June.
ECB keeps rates steady but cuts macro forecasts
The ECB left its key deposit rate unchanged at 4.0% but revised its inflation and economic growth forecasts lower and indicated that discussion on dialing back restrictive policy later in the year had begun. ECB President Christine Lagarde acknowledged that “good progress” had been made toward the 2.0% inflation target but also indicated that the Governing Council still needed to be more confident that inflation was falling sustainably. "We will know a lot more in June," she said, adding that there was broad agreement on that point.
The central bank now sees inflation falling to 2.0% in 2025, rather than 2026. Projections for core inflation, which excludes volatile food and energy prices, were also revised lower, with the latest update suggesting that it would hit the 2.0% target in 2026. The ECB’s latest forecast cut economic growth to 0.6% in 2024, which was slightly lower. However, it expects growth to accelerate to 1.5% in 2025.
UK budget: Payroll tax cut again, windfall levy on oil and gas extended
Chancellor of the Exchequer Jeremy Hunt, in his last Spring Budget before a general election, unveiled a reduction in national insurance rates that would amount to a GBP 10 billion payroll tax cut. The budget also included changes to child benefit rules that would make them more generous. Hunt partly funded these measures by making the tax status of foreign residents whose permanent homes are outside the UK less favorable and extending the windfall tax on oil and gas companies for another year. The Office for Budget Responsibility said that spending cuts of GBP 20 billion were still required to balance the budget. It also said that taxes would climb to 37.1% of gross domestic product (GDP) by 2028–2029, a figure that was lower than the 37.7% predicted in November.
Japan
The performance of Japan’s stock markets was mixed over the week, with the Nikkei 225 Index finishing 0.56% lower and the broader TOPIX Index gaining 0.64%. Exuberance around artificial intelligence and solid corporate earnings boosted sentiment.
Investor speculation continued about the Bank of Japan’s (BoJ’s) likely monetary policy trajectory—with signs of increased conviction that the central bank could be closer to raising short-term interest rates out of negative territory than previously thought. Comments by a BoJ board member suggested that a virtuous cycle of prices rising in tandem with wages was in sight (a stated precondition for monetary policy tightening).
Against this backdrop, the yield on the 10-year Japanese government bond rose to 0.73% from 0.71% at the end of the previous week. The yen appreciated sharply to around JPY 147.4 against the U.S. dollar from about 150.1 the prior week. The currency’s strength weighed on Japan’s exporters, as they derive a significant share of their revenues from overseas. Japanese stock markets have been significantly boosted by historic yen weakness over the past three years.
Household spending shrinks amid mixed economic data
On the economic data front, household spending fell by 6.3% year on year (y/y) in January, the sharpest decline in nearly three years. Weakness was evident across most categories and notably in auto sales. Inflationary pressure has had the effect of weighing on domestic demand. Conversely, nominal wage growth came in higher than anticipated, with wages rising 2.0% y/y in January versus estimates of 1.2%. Japan’s unions are demanding the highest wage rises in over three decades at this year’s spring shunto negotiations. Finally, the consumer price index for the Tokyo area rose 2.5% y/y in February, in line with expectations.
China
Chinese equities gained as the government’s recent market stabilization measures lifted investor confidence despite an uncertain economic outlook. The Shanghai Composite Index rose 0.63%, while the blue chip CSI 300 added 0.2%. In Hong Kong, the benchmark Hang Seng Index gave up 1.42%, according to FactSet.
Beijing set an economic growth target of around 5% this year at the National People Congress (NPC), China’s parliament, which started March 5 and ends March 11. The target was the same as last year, when China’s economy officially rose 5.2%. However, analysts said it would be hard to match last year’s growth pace, which benefited from a post-lockdown rebound in early 2023. The government set the budget deficit at around 3%—the same target as early last year until it was subsequently raised to 3.8% to accommodate more borrowing—and said it would issue RMB 1 trillion in special ultra-long central government bonds to support growth.
At the NPC, Premier Li Qiang announced that China will refine housing policies and construct government-subsidized housing to support the property sector, which is mired in a prolonged downturn. Li also stated that the government will step up efforts in big data and quantum computing to enhance technological self-reliance at a time when the U.S. is pushing several countries to further restrict their technology exports to China. However, analysts were underwhelmed by the lack of tangible measures to support Beijing’s economic goals.
On the economic front, the private Caixin/S&P Global survey of services activity fell to a weaker-than-expected 52.5 in February from January 52.7. However, the gauge remained above the 50 threshold, separating expansion from contraction for the 14th consecutive month.
Exports jump in early 2024
Chinese exports and imports rose in the first two months of the year. Exports grew an above-consensus 7.1% in January and February from the prior-year period, improving from December’s 2.3% increase. Imports rose 3.5% over the two-month period, greater than the 0.2% gain in December. China combines trade data for the first two months of the year to smooth out distortions arising from the weeklong Lunar New Year holiday.
Other Key Markets
Türkiye (Turkey)
Inflation continues rising but could crest in the spring
Early in the week, the Turkish government reported that consumer price index (CPI) inflation in February was measured at a month-over-month rate of 4.5%. This was higher than expected, and it lifted the annualized CPI from 64% in January to 67% in February.
According to T. Rowe Price sovereign analyst Peter Botoucharov, the main driver of Turkish inflation remains services costs, particularly rent and transportation, but he notes that core goods inflation is stabilizing. He believes that headline inflation could continue climbing toward 70% in the months ahead, then he anticipates a downtrend in the second half of the year. As for monetary policy, he expects tight monetary conditions to persist, with the potential for the central bank to raise its key interest rate, the one-week repo auction rate—currently at 45.0%—one more time as inflation begins to crest in the spring.
Poland
Policymakers hold rates steady amid “substantial uncertainty” about future inflation
On Wednesday, the Polish central bank concluded its scheduled two-day monetary policy meeting and, as expected, 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 acknowledged that “the process of disinflation” in the Polish economy is continuing, with inflation being “driven down by the reduction of cost pressures reflected in falling producer prices, and by the weak growth in economic activity.” They also noted that fourth-quarter GDP growth, measured at 1.0%, was “relatively low” but that incoming data “indicate an increase in economic activity growth” in the first quarter of 2024. While policymakers projected that annual CPI growth “will run at the level consistent with” the central bank’s inflation target, they anticipate that “the decline in core inflation will be slower and core inflation will remain above CPI inflation.” As a result, policymakers decided to keep interest rates unchanged.
Central bank officials justified their decision by noting that inflation developments in future quarters are “associated with substantial uncertainty, related in particular to the impact of fiscal and regulatory policies on price developments, as well as the pace of economic recovery…and labour market conditions.” They also cited other factors, such as the potential for higher value-added taxes (VAT) on food products, higher energy costs, and “medium term demand pressure in the economy…stimulated by wage growth.”
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