Global Markets Weekly Update: November 19, 2021
U.S.
Benchmarks end mixed as Nasdaq hits record high
The major indexes 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. Financials were also weak. T. Rowe Price traders reported that market activity was generally subdued as the Thanksgiving holiday week approached.
Several signs that the 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. 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.
Investors await Fed chair announcement
Our traders noted that Wall Street seemed to be on the lookout for the announcement of the next Federal Reserve Chair—in particular, whether President Joe Biden would reappoint current Chair Jerome Powell or instead promote Fed Governor Lael Brainard, who is widely viewed as among the most “dovish” of Fed officials. While many continued to view Powell’s renomination as the most likely outcome, the growing chance of Brainard’s appointment may have weighed on financials shares by lowering interest rate expectations and, therefore, banks’ lending margins. Some also believe that Brainard would pursue more stringent bank regulations.
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 (see below). 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. T. Rowe Price traders indicated that higher Treasury rates earlier in the week led to a cautious tone in secondary muni market trading. Primary market deals were generally met with strong demand, however.
Heavy corporate bond issuance
According to our traders, the primary calendar was active in the investment-grade corporate bond market, with the level of new issuance surpassing weekly expectations. In general, the deals were met with adequate demand. However, as market participants absorbed the glut of supply, spreads widened in the secondary market, led by weakness in intermediate- and longer-term maturities amid rate volatility.
Meanwhile, high yield bonds experienced weakness as inflation concerns and rising rates mitigated risk appetite and energy names traded lower amid the decline in oil prices.
U.S. Stocks1
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
35,601.98 |
-498.33 |
16.32% |
S&P 500 |
4,697.96 |
15.11 |
25.08% |
Nasdaq Composite |
16,057.44 |
196.48 |
24.59% |
S&P MidCap 400 |
2,870.72 |
-31.47 |
24.46% |
Russell 2000 |
2,343.16 |
-68.62 |
18.65% |
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 Associates’ presentation thereof.
Europe
Shares in Europe were little changed, 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%.
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 markets. UK gilt yields ended the period broadly unchanged following the ECB’s dovish signals.
Restrictions return
European countries began reimposing stricter restrictions—including stay-at-home orders and movement controls—to curb the spread of the coronavirus. The Netherlands announced a three-week partial lockdown of its population. Germany, which is suffering from a record increase in infections, introduced a three-step system of progressively tougher controls depending on hospitalization rates in each region. Health Minister Jens Spahn said a lockdown could not be ruled out. Belgium mandated a wider use of masks and enforced working from home, as did Ireland. Meanwhile, the UK, which has one of the highest infection rates, expanded its vaccine booster program to people over 40 years old.
UK inflation surges, payrolls rise strongly; BoE’s Bailey “uneasy”
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.”
EU car sales drop to record low
The European Automobile Manufacturers’ Association said that new passenger car registrations in the European Union dropped by 30.3% month over month in October to a record low of 665,001 units. This sharp contraction stemmed primarily from a shortage of semiconductors that has weighed on the supply of new vehicles.
Japan
Japan’s stock market returns were muted over a week 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.
Government approves larger-than-expected stimulus package
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.
In the fight against the coronavirus, a sizable portion of the spending will go toward infection prevention and reinforcing medical systems. Other key measures, many of which had been outlined before the announcement, include cash handouts of JPY 100,000 (approximately USD 880) to children aged 18 or younger in accordance with an income cap on households, as well as financial aid to struggling families, students, and small businesses. The "Go To Travel" subsidy program to promote domestic tourism will also be restarted. Furthermore, the government has committed to assisting in the building of semiconductor factories to ensure sufficient supplies of computer chips.
Economy contracts in third quarter due to weak consumer spending and sluggish exports
Japan’s Cabinet Office published its quarterly estimates of gross domestic product. The data showed that the economy shrank 0.8% in the third quarter, equal to an annualized contraction of 3.0%. A fall in consumer spending was attributable to the country’s coronavirus states of emergency, which were lifted in September, while weakness in exports was caused in part by supply chain constraints—vehicle exports were notably hit by a shortage of semiconductor components.
Separate data released by the Ministry of Finance showed that exports 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.
BoJ Governor Kuroda reaffirms commitment to powerful monetary easing
In a speech to business leaders, BoJ Governor Haruhiko Kuroda said that amid firmness in the corporate sector, he expects an improving trend in the overall economy to become evident in the first half of 2022, when the impact of the pandemic and supply-side constraints are projected to wane. He also said that while it is likely that the inflation rate will gradually increase as the coronavirus pandemic comes to an end (expected in fiscal year 2023), it will not meet the central bank’s 2% price stability target by then. Given this outlook, Kuroda emphasized that the BoJ needs to persistently continue with powerful monetary easing.
China
Chinese markets ended mixed 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 favored sectors. The yuan weakened to 6.4009 per U.S. dollar, a two-week low.
Home prices and sales fall
Data released at the start of the week showed that economic momentum stayed weak in October as the real estate downturn weighed on industry. Prices for new and resold homes fell amid deeper contractions in construction starts and investment by developers. Housing sales shrank 21.2% in October from September, while 52 of the top 70 cities recorded month-on-month price declines—16 more than in September.
In other economic readings, fixed asset investments continued to slow, rising 6.1% in the year’s first 10 months from the prior-year period versus the 7.3% rise from January to September. October retail sales and industrial production each grew faster than expected, though industrial output recorded its second-lowest reading this year.
Real estate firms dialed up their financing plans with a total of over USD 2.7 billion on Wednesday alone, taking the past week’s total more than USD 4.5 billion. Plans include Agile Group’s USD 310 million convertibles issue, China Evergrande Group’s sale of its stake in HengTen Networks Group Ltd. and Country Garden Services Holdings’ second share placement in six months. At least three other developers announced bond issues in the domestic market. Meanwhile, ratings agency S&P Global noted in a report that “an Evergrande default is highly likely.” Chinese developers owed RMB 33.5 trillion (USD 5 trillion) at the end of the second quarter—about one-third of China’s GDP—making it critical for Beijing to provide support, according to investment bank Nomura.
Debt problems to lead to asset sales?
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. Analysts are eyeing Huarong’s actions as a possible template that other highly indebted companies might follow as Beijing stays the course on its deleveraging campaign.
Other Key Markets
Turkey
Turkish stocks, as measured by the BIST-100 Index, returned about 6.0% for the week. 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.
According to T. Rowe Price sovereign analyst Peter Botoucharov, this action appears to confirm that the Turkish government prefers a pro-growth policy stance ahead of the general and presidential elections in 2023. To the detriment of foreign investors, this latest rate cut takes place against a challenging backdrop of nearly 20% year-over-year inflation, and it contributed to the lira’s decline to a new all-time low versus the U.S. dollar this week. Botoucharov believes that lira exchange rate weakness will add to existing inflation pressures via higher import prices and could push the 12-month consumer price index (CPI) into the 20% to 22% range in the first quarter of 2022.
Chile
Chilean stocks, as measured by the S&P IPSA Index, returned about -2.8%. 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.
Also, as was generally expected, President Sebastian Pinera survived two impeachment-related Senate votes related to the so-called Pandora Papers—a cache of leaked international documents that allege questionable or illegal financial activities by various officials, leaders, and prominent figures around the world. While both impeachment motions received less than the 29 votes needed (i.e., two-thirds of the Senate) to convict and remove Pinera from office, T. Rowe Price emerging markets sovereign analyst Aaron Gifford notes that the president’s popularity has taken a major hit that could influence the outcome for this weekend’s elections.
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.
© 2021 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.