Global Markets Weekly Update: November 29, 2019
U.S.
S&P 500, Dow, and Nasdaq move on to new highs
Growing optimism about a “phase one” trade deal helped stocks close higher for the holiday-shortened week. The large-cap Dow Jones Industrial Average and S&P 500 Index reached record highs, as did the technology-heavy Nasdaq Composite Index. Trading volumes were elevated early in the week but trailed off as traders headed off to celebrate Thanksgiving. Markets were closed Thursday in observance of the holiday and shuttered early Friday.
Consumer discretionary shares outperformed within the S&P 500, boosted by a rise in Amazon.com shares following early signs of favorable online holiday shopping trends. The week was also notable for a continued flow of takeover announcements. Charles Schwab confirmed rumors of plans to acquire rival discount broker TD Ameritrade, and French luxury goods maker LVMH Moët Hennessy Louis Vuitton announced a deal to buy Tiffany & Co.
China’s announcement of new IP protections boosts trade hopes
Stocks rose sharply Monday following news over the weekend that China had announced plans to develop new measures to protect against the theft of intellectual property (IP)—a central demand of U.S. trade negotiators. While short on details, the plans would reportedly involve both broadening the definition of IP theft and stiffening its penalties. Semiconductor stocks seemed to get a particular boost from the news, with Texas Instruments, Nvidia, and Micron Technology, among others, recording strong gains. After the close of trading Monday, China’s official news agency announced that the two sides had “reached consensus on properly resolving related issues.” President Donald Trump’s decision to sign a bill supporting human rights in Hong Kong drew criticism from China on Thursday, however, seemingly causing stocks to end the week on a modest down note.
The week also brought some encouraging economic signals. New home sales fell slightly in October but topped analyst estimates, making for the best two-month gain in 12 years, according to Bloomberg. Meanwhile, durable goods orders rebounded unexpectedly in October, and the second reading of annualized growth in gross domestic product (GDP) in the third quarter was revised upward from 1.9% to 2.1%, as business investment declined less than previously estimated. On the downside, personal incomes were flat in October, the worst showing in a year.
Longer-term Treasury yields remain stable, but corporate credit spreads narrow
Economic data and news on the trade deal failed to move the bond market much, with longer-term Treasury yields staying within a narrow band over the week. (Bond prices and yields move in opposite directions.) Equity gains bolstered investment-grade corporate bond market sentiment, however, and credit spreads—the additional yield offered over Treasuries—narrowed across most sectors. T. Rowe Price traders reported that some investors harvested recent gains, and market liquidity was somewhat limited ahead of the Thanksgiving holiday. New issuance was also light, with the volume of deals falling short of modest expectations.
The high yield market tracked equities higher, largely due to renewed trade optimism. According to T. Rowe Price traders, strong demand has driven the busiest November in terms of below investment-grade new issuance since 2006. Health care bonds underperformed after Bloomberg reported that several pharmaceutical companies have received grand jury subpoenas in a federal criminal investigation against opioid makers.
Munis: Chicago bond ratings affirmed ahead of refinancing deal
The broad municipal market posted positive returns early in the week and yields moved slightly lower, led by longer-term maturities. The City of Chicago garnered headlines with the passage of an $11.6 billion spending plan. The city also received rating affirmations from three credit rating agencies in advance of its upcoming $1.2 billion general obligation and revenue bond refinancing deal.
U.S. Stocks1
Index |
Friday's Close |
Week's Change |
% Change YTD |
DJIA |
28,051.41 |
175.79 |
20.25% |
S&P 500 |
3,140.98 |
30.69 |
25.30% |
Nasdaq Composite |
8,665.47 |
145.59 |
30.60% |
S&P MidCap 400 |
2,010.16 |
23.26 |
20.87% |
Russell 2000 |
1,624.40 |
35.11 |
20.45% |
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
European stocks follow Wall Street higher
Stock markets in Europe were higher, buoyed by a rally on Wall Street. However, worries that U.S.-China trade tensions would escalate after President Trump’s support for Hong Kong protests capped gains. The pan-European STOXX Europe 600 Index rose 1.1%. The exporter-heavy German DAX gained about 0.7%, and the UK’s FTSE 100 Index was up about 0.5%.
UK pound gains as Conservative Party seems likely to win majority in Parliament
The British pound rose 0.7% against the U.S. dollar as another poll suggested that a Conservative Party win was the likely outcome of the upcoming December 12 UK elections. The YouGov poll predicted that the Conservative Party would win 359 seats, giving it the largest working majority in decades. Prime Minister Boris Johnson has promised that he will deliver a new Brexit deal to Parliament before Christmas.
German consumer sentiment rises
German consumer sentiment rose unexpectedly in December, according to a survey published by the GfK institute. The improved mood among buyers is expected to give a boost to household spending and support the export-driven German economy, which has come under pressure from U.S.-China trade tensions and Brexit uncertainty. Income expectations also improved in line with a strong labor market, rising wages, and moderate inflation, according to the institute. An unexpected drop in German unemployment added to positive sentiment that the country’s manufacturing slowdown may be coming to an end. Joblessness fell by 16,000 in November, and the jobless rate held at 5%, near a record low.
OECD reports EU hardest hit by global trade slowing
The Organization for Economic Cooperation and Development (OECD) reported that the slowdown in global trade is having the greatest impact on the European Union (EU) as Brexit uncertainty and slowing in the German industrial sector exacerbate the slowing caused by U.S.-China trade tensions. In the third quarter of 2019, EU exports contracted 1.8% compared with the previous quarter, and imports fell 0.4%. The EU figures compared with a 0.7% drop in exports across the Group of 20 major economies.
Japan
Japan’s markets posted gains for the week amid reports of positive developments in U.S.-China trade negotiations. The Nikkei 225 Stock Average rose 0.78%, and the broader TOPIX benchmarks also posted weekly gains. For the year to date, the Nikkei 225 is ahead about 16.38%, while the large-cap TOPIX Index and the TOPIX Small Index are ahead approximately 13.7% and 15%, respectively.
Factory output contracts
Stock gains were tempered by losses on Friday after news that Japanese factory output had contracted more than expected in October. The yen weakened during the week’s risk-on environment and closed at ¥109.64 per U.S. dollar on Friday. The yield on the 10-year Japanese government bond was little changed for the week and remained in negative territory.
IMF cuts Japan’s GDP growth forecast
The International Monetary Fund (IMF) trimmed Japan’s fiscal 2019 GDP growth forecast to 0.8% from 0.9% due to the global economic slowdown. The IMF noted that Japan’s economy has been resilient despite the fall-off in export demand and suggested that the government should not tighten its aggressive spending stance for a time. “Beyond the short-run, a clear commitment to long-term fiscal sustainability is essential,” said IMF Managing Director Kristalina Georgieva.
The IMF believes that Japan’s economic growth is likely to continue slowing in fiscal 2020 and forecast 0.5% growth next year. The fund’s recommendations for the Bank of Japan included more ambitious structural reforms. Georgieva stated that Prime Minister Shinzo Abe’s economic policies have helped to lower deflation risk and reduced the fiscal deficit, but inflation has stubbornly remained under the central bank’s 2% target. The IMF noted that Japan’s aging and declining population will continue to crimp growth.
Japan needs more tax revenues
Georgieva praised the smooth implementation of a higher consumption tax, which was raised to 10% from 8% in October, but she emphasized the IMF’s view that the Japanese government will need significantly more revenues over time. The IMF believes that Japan should gradually increase the consumption tax to 15% by 2030 and to 20% by 2050, reintroduce a wealth tax, and raise the capital gains tax over time to 30% from 20% to pay for rising social security costs for its aging population and to reduce the massive public debt.
China
Chinese stocks fall as U.S. legislation supporting Hong Kong protesters threatens escalation
Chinese stocks fell for the third straight week as President Trump’s signing of a bill supporting the Hong Kong protesters drew displeasure from Beijing and complicated bilateral trade talks aimed at forging a partial trade deal between both countries. For the week, the benchmark Shanghai Composite Index declined 0.5% and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, gave up 0.6%. Both gauges fell to their lowest levels of the week on Friday, a day after China officially condemned the U.S. legislation and vowed to take “firm countermeasures” if the U.S. continued to interfere in Hong Kong, without giving specifics. The prospect of retaliation by China comes as U.S.-China trade talks have entered a sensitive stage regarding a so-called phase one trade deal that is supposed to pave the way toward a broader agreement. Officials on both sides signaled during the week that an interim deal is close at hand, though it isn’t expected to address intellectual property, technology transfer, or other contentious issues.
Poor economic data also pressured Chinese stocks this week. Industrial profits in China fell in October for the third straight month by a worse-than-forecast 9.9% from a year ago, accelerating September’s 5.3% decline, the country’s statistics bureau revealed Wednesday. The contraction was the latest report suggesting that China’s economy had yet to bottom out as a trade deal with the U.S. remains elusive and raised the likelihood that Beijing would soon roll out fresh easing measures to support the economy.
Other Key Markets
Brazil’s central bank supports currency
The Central Bank of Brazil intervened in the currency market for the first time in three months to support the country’s currency, the real, which had declined to a record low against the U.S. dollar. The central bank sold the dollar and bought the real, succeeding in bringing the real off its low. The real’s bout of weakness began during the previous week, when foreign bidders showed limited interest in the Brazilian government’s auction of development rights for some of the country’s oil fields. Earlier in the week, Brazil’s economy minister said that he was not worried about the currency’s weakness, which triggered more selling and the central bank’s intervention. Brazilian stocks were volatile during the week but finished only modestly lower.
Protests in Colombia pressure peso, stocks, bonds
The Colombian peso also experienced selling pressure amid antigovernment demonstrations and union strikes to protest proposed fiscal austerity measures such as a lower minimum wage for young people and a higher age to qualify for government pension distributions. The protests seemed to lose strength over the course of the week as fewer people turned out, helping to allay investor fears that an uprising on the level of Chile’s recent protests would overtake the country. Colombian stocks and bonds were volatile, although T. Rowe Price traders characterized selling in the country’s bonds as “orderly.”
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