Treasury Yield Rises, Purchasing Manager Data May Show Contraction
Last Week Review
Global equities declined 0.4% last week, led by a 0.8% decline in U.S. stocks. The two-year Treasury yield increased 0.20% to 4.53% as Federal Reserve leaders warned against premature policy easing. The expected peak Fed funds rate is now close to where it was before the prior week’s positive inflation data. High yield credit spreads fell and are about 1% below September highs.
China-U.S. G-20 Meeting Exceeds Low Expectations
U.S. President Joe Biden and China President Xi Jinping met at the G-20 summit of nations last week. The meeting somewhat exceeded low expectations with both leaders depicting a desire to avoid “redline” scenarios, though there was no major change to the existing tense U.S.-China relations. G-20 leaders met for an emergency meeting after a missile strike in Poland killed two people. Initial fears that NATO would need to retaliate dissipated after announcements that the cause was likely one of Ukraine’s defense missiles. G-20 countries still condemned Russia for the war.
U.S. Midterm Elections Result in Divided Government
Media projections show that Republicans clinched a slim majority in the House last week, leaving the U.S. with a split government that should limit the potential for market-moving policy. Attention has started to turn toward the 2024 presidential race. Former President Donald Trump announced his candidacy last week.
China’s Economic Indicators Weak
China’s industrial production and retail sales data both fell short of consensus expectations. Zero-COVID-19 policies — still broadly in place albeit adjusting — continue to weigh on economic activity. Policymakers recently announced more support for property developers, but the property sector continues to be a key growth headwind.
U.S. Earnings Trending Positively
Walmart (WMT) reported upbeat results last week while Target (TGT) missed estimates and lowered financial guidance. While U.S. consumers face challenges, they remain on decent footing overall as retail sales rose 1.3%, beating expectations. With 95% of S&P 500 Index companies reporting third quarter earnings, aggregate sales rose 10.9% year-over-year and earnings increased 2.3%, both ahead of expectations. For 2023, earnings estimates have fallen about 7%. However, this was broadly expected and may ultimately pave the way for an improvement in investor sentiment on equities.
This Week Preview
Europe Combats High Energy Prices
Russia and Ukraine reached an agreement to extend the Black Sea grain deal for 120 days, helping alleviate the rise in global food prices for now. The Russia-Ukraine war remains at risk of further disrupting global economic activity. On Wednesday, European countries are scheduled to meet to discuss ways to mitigate the economic impact of high energy prices.
U.S., European Purchasing Manager Data May Show Contraction
The U.S. flash services Purchasing Managers’ Index is expected to improve but remain below 50, indicating contraction, with manufacturing expected to fall to 50. The index in Europe may decline, remaining below 50 along with the U.K. The U.K.’s fiscal plan released last week includes significant fiscal tightening that may help restore longer-term stability. However, the plan projects challenging economic conditions over the near term.
Fed Meeting Minutes Set for Release on Wednesday
November Federal Reserve meeting minutes are scheduled for release on Wednesday. They may provide additional color around future policy as the Fed eventually looks to slow its pace of rate hikes. On Thursday, the European Central Bank is expected to release details of its October meeting.
Source: Bloomberg for data, news developments and schedule of economic releases. Data as of November 20, 2022.
See our latest insights and research.
IMPORTANT INFORMATION. For Asia-Pacific markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. Northern Trust and its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, and its accuracy and completeness are not guaranteed. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor. Opinions and forecasts discussed are those of the author, do not necessarily reflect the views of Northern Trust and are subject to change without notice.
This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. Information is subject to change based on market or other conditions.
Forward-looking statements and assumptions are Northern Trust’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
Past performance is no guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by Northern Trust. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. Investment management/advisory fees are described in Northern Trust Investments, Inc. Form ADV Part 2A.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc. Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K, NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Belvedere Advisors LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
© 2022 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A.
P-111822–2602549–111823
Weekly Investment Commentary: A home for real estate in multi-asset portfolios
In our view, an allocation to real estate remains essential in a multi-asset portfolio.
Global Weekly Commentary: Yields surge as new regime plays out
Yields on benchmark 10-year U.S. Treasuries last week briefly rose to 16-year highs above 4.50% as major central banks paused rate hikes but left the door open for more.
Global Markets Weekly Update: September 22, 2023
Review the performance of global stock and bond markets over the past week, along with relevant insights from T. Rowe Price economists and investment professionals.