Global Markets Weekly Update: October 06, 2023
U.S.
Stocks end the week mixed following Friday’s surprise jobs data
The major indexes closed mixed over another week of top-heavy trading in which large-cap growth stocks—and the mega-cap information technology and internet stocks, in particular—widely outpaced the rest of the market. Reflecting the underperformance of most stocks, an equally weighted version of the S&P 500 Index lagged its market-weighted counterpart by the largest margin since March. Similarly, large-cap growth stocks outperformed their value counterparts (according to Russell indexes) and the large-cap S&P 500 outperformed the small-cap Russell 2000 Index by the widest margins over the same period.
Americans continue to return to the labor force…
T. Rowe Price traders noted that volumes were generally subdued through most of the week, as investors awaited the closely watched official nonfarm payrolls report on Friday, with many appearing to hope that it would show another decline in hiring that would, in turn, convince Federal Reserve policymakers to forego another rate hike. Stock futures fell sharply before the equity market opened, however, as the Labor Department reported that employers added 336,000 nonfarm jobs in September, roughly double consensus estimates.
…but not necessarily lured by high wages
The details in the jobs report offered a more nuanced picture, however, which appeared to foster a market rebound soon after equity trading began at 9:30 a.m. Average hourly earnings rose 0.2% in the month, bringing down the year-over-year gain to 4.2%, its lowest level since June 2021. The workforce participation rate also stayed steady at 62.8%, its best level since the eve of the pandemic lockdowns in February 2020. Taken together, the data suggested that increasing supply instead of rampant demand for workers was driving the labor market, making for a more benign inflationary environment.
Our firm’s traders noted that several other muted economic signals during the week also seemed to calm fears about a rebound in growth and inflation. While a gauge of activity in the manufacturing sector picked up a bit in September and indicated that factory activity was contracting only slightly, its counterpart in the much larger and healthier services sector indicated that growth had slowed considerably since August. On Wednesday, payrolls processor ADP also offered a much different picture of the job market, with its tally of private sector payrolls only expanding by 89,000 in September, the smallest increase since January 2021.
Treasury yields continue upward march
The yield on the benchmark 10-year U.S. Treasury note spiked to another 16-year high of around 4.89% in early trading Friday but fell back somewhat as equities rallied later in the morning. As Treasury yields rose early in the week, munis outperformed—bringing ratios slightly lower over the week. Our traders noted that new issues performed well despite macro weakness, and the weekly issuance volume was expected to decrease substantially the following week.
Issuance was light in the investment-grade corporate bond market, and a few issues were oversubscribed. Spreads moved wider over the week, and regional bank issues underperformed notably. High yield bonds also came under pressure early in the week as rates sold off and equities were in the red. Our traders noted that the primary market remained quiet, and they don’t expect issuance to pick up until the current volatility subsides. Managers of collateralized loan obligations remained active buyers in the bank loan market, although they were somewhat more selective given the macro backdrop.
U.S. Stocks
Index |
Friday’s Close |
Week’s Change |
% Change YTD |
DJIA |
33,407.58 |
-99.92 |
0.79% |
S&P 500 |
4,308.50 |
20.45 |
12.22% |
Nasdaq Composite |
13,431.34 |
212.02 |
28.33% |
S&P MidCap 400 |
2,455.43 |
-46.69 |
1.03% |
Russell 2000 |
1,745.46 |
-39.54 |
-0.89% |
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 1.18% lower as bond yields surged amid worries about an extended period of higher interest rates. Major stock indexes also fell. Italy’s FTSE MIB dropped 1.53%, Germany’s DAX declined 1.02%, and France’s CAC 40 Index lost 1.05%. The UK’s FTSE 100 Index slid 1.49%.
After a volatile week in European bond markets, the yield on Germany’s 10-year government bond slipped back below 3% but remained near a decade-plus high. French and Italian bond yields ticked up amid cautious sentiment. In the UK, the yield on the benchmark 10-year UK government bond held near its highest levels since August 2008 on signs of sticky inflationary pressures.
Economic data signal eurozone economy struggled in third quarter
Both official and private-sector data suggested that the eurozone economy likely stumbled in the third quarter. The final Composite Purchasing Managers’ Index (PMI) compiled by S&P Global came in at 47.2 in September, marking a fourth consecutive monthly contraction. (PMI readings less than 50 correspond with shrinking business output.)
The EU’s statistics office reported that eurozone retail sales fell more than expected in August, declining 1.2% sequentially due to a sharp drop in gasoline, mail orders, and internet shopping.
German industrial orders rebound; exports fall for second month
On a month-over-month basis, German industrial orders in August bounced back by a seasonally and calendar-adjusted 3.9%, after dropping 11.7% in July. Strong increases in computing, electronic, and optical products drove the gain. Meanwhile, exports fell 1.2% sequentially in August, substantially more than forecast, following a 1.9% decline the previous month due to weak global demand.
UK house prices, construction activity weaken
House prices in the UK fell for the sixth month running in September, easing 0.4% sequentially, mortgage lender Halifax said. Another mortgage lender, Nationwide Building Society, estimated that house prices were unchanged last month after a 0.8% reduction in August. Both indexes declined the most year over year since 2009.
Meanwhile, a rapid slide in homebuilding caused activity in the construction industry to fall at the fastest pace in more than three years in September, an S&P Global/CIPS survey of construction purchasing managers showed.
Japan
Stocks in Japan fell over the week, with the Nikkei 225 Index down 2.7% and the broader TOPIX Index declining 2.6%. Equities came under pressure amid surging U.S. bond yields and concerns that central banks will remain hawkish for longer. In Japan, economic data releases showed that real wages and consumer spending continued to fall in August, also weighing on sentiment. Conversely, the Bank of Japan’s (BoJ’s) latest quarterly Tankan survey showed that a weak yen has boosted business sentiment among Japanese companies, lending some support.
Yen rebound prompts speculation about intervention
Speculation was rife that Japan’s Ministry of Finance (MoF) had intervened in the foreign exchange market to stem the yen’s slide, following the currency’s near-instant surge after it briefly breached the JPY 150 against the U.S. dollar level, which many market participants had anticipated could serve as a trigger for authorities to step in. MoF officials neither confirmed nor denied whether they had intervened after the yen plunged to its lowest level in 11 months, but they continued to stress that they would act against excess volatility without ruling out any options. The yen finished the week stronger, hovering around JPY 149 against the U.S. dollar.
The yield on the 10-year Japanese government bond (JGB) rose to 0.80%, a 10-year high, from 0.76% at the end of the previous week. Despite the BoJ making unscheduled purchases of JGBs at maturities between five and 10 years, yields rose amid the sell-off in U.S. Treasuries and increased expectations that the BoJ will pursue monetary policy normalization sooner rather than later.
Solid expansion in services sector contrasts with deteriorating manufacturing conditions
According to the latest Purchasing Managers’ Index (PMI) data compiled by au Jibun Bank, business activity within Japan’s services sector expanded solidly in September, supported by sustained growth in customer demand following the lifting of pandemic restrictions earlier this year. Expansion softened over the prior month, however, with the services PMI falling to 53.8 from 54.3 in August (levels above 50 indicate expansion). Deterioration in manufacturing conditions gathered pace in September, with the manufacturing PMI declining to 48.5 from 49.6 the previous month, as both output and new orders fell sharply.
China
Financial markets in China were closed last week for the Mid-Autumn Festival and National Day holiday and will reopen Monday, October 9. The Hong Kong Stock Exchange resumed trading last Tuesday, and the benchmark Hang Seng Index declined 0.14% for the holiday-shortened week, according to FactSet.
Factory productions picks up for first time in six months
China’s factory activity returned to expansion for the first time since March, the latest signal that the economy may have bottomed. The official manufacturing PMI rose to an above-consensus 50.2 in September from 49.7 in August. The nonmanufacturing PMI expanded to a better-than-expected 51.7 from 51.0 in August. Separately, the private Caixin/S&P Global survey of manufacturing and services activity both eased from the previous month but remained in expansion.
Domestic activity in China picked up significantly during the eight-day holiday. Approximately 395 million trips were taken via road, rail, air, and waterways in the first four days of the holiday, almost 76% above the prior year period, according to the Ministry of Transport. Box office sales reached RMB 1.2 billion in the first three days, ahead of sales reported a year earlier. Meanwhile, the offshore gambling hub of Macau received more than 160,000 visitors from mainland China and Hong Kong on Saturday, marking the highest single-day total since the pandemic.
China’s crisis-hit property sector showed slight improvement in September. New home sales by the country’s top 100 developers fell 29.2% in September from a year earlier, easing from the 33.9% drop in August, according to the China Real Estate Information Corp. The slower month-on-month decline came after Beijing rolled out a raft of stimulus measures targeting the property sector in August.
Other Key Markets
Türkiye (Turkey)
At the end of September, S&P Global Ratings revised its outlook on Türkiye’s long-term hard currency debt to “stable” from “negative.” However, S&P maintained its B credit rating on the sovereign. The credit rating agency acknowledged Türkiye’s macroeconomic policy shift in the aftermath of the June elections and noted that the government’s economic team is implementing “measures aimed at cooling the overheated economy and stabilizing the exchange rate without undermining financial and fiscal stability.”
T. Rowe Price sovereign analyst Peter Botoucharov believes that while the deterioration in Türkiye’s sovereign rating since 2016 is beginning to reverse, the path to stability and restoring investors’ confidence will be long. Nevertheless, he believes that S&P’s recognition of Türkiye’s policy changes should provide support to the economic team to continue their pivot toward a more orthodox policy stance.
Poland
On Wednesday, the Polish central bank decided to reduce its key interest rate, the reference rate, from 6.00% to 5.75%. This action was largely in line with market expectations, though some expected the central bank to make a larger cut.
According to the central bank’s post-meeting statement, policymakers acknowledged a “slowdown in activity growth” and noted that annual consumer price inflation “markedly declined again” from a year-over-year rate of 10.1% in August to 8.2% in September. They also predicted a “further decline in consumer price inflation in the coming quarters” and observed that “incoming data confirm weak demand and cost pressure in the economy as well as reduced inflation pressure amongst the weakened external economic conditions.”
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