markets & economy  |  MARCH 28, 2024

Global Markets Weekly Update

Capital investment picks up in U.S.

U.S.

Stocks close out strong quarter with gains

Most of the major indexes advanced over the shortened trading week to end a quarter of strong gains. The S&P 500 Index recorded new closing and intraday highs to end the week. The market’s advance was notably broad, with an equal-weighted version of the S&P 500 Index gaining 1.64%, well ahead of the 0.39% increase in the more familiar market-weighted version. Small-caps also easily outperformed large-caps, and the Russell 1000 Value Index gained 1.79%, in contrast with the 0.60% decline in its growth counterpart. Markets were closed on Friday in observance of the Good Friday holiday but were scheduled to reopen on Monday in advance of many international markets.

Investors await economic implications of Baltimore port closure

T. Rowe Price traders noted that market activity was generally subdued ahead of the holiday weekend, although volumes were expected to pick up to some degree as pension funds and other institutional investors rebalanced portfolios ahead of the quarter’s end. Our traders noted that news flow was also exceptionally light, with the notable exception of the collapse of the Francis Scott Key Bridge in the firm’s hometown of Baltimore on Tuesday morning. The collapse cut off shipping access to the Port of Baltimore, one of the nation’s largest ports and its primary port for car and truck shipments. President Joe Biden pledged federal aid to reopen the port would soon be coming, but the broader economic implications of the shutdown remain uncertain, particularly given the long-term diversion of trucking routes while the bridge is rebuilt.

The week’s economic calendar was somewhat busier. On Tuesday, the Commerce Department reported that durable goods orders rose 1.4% in February, somewhat more than expected, although part of the increase was due to a revision in January’s steep decline, from 6.2% to 6.9%. Excluding the volatile defense and aircraft segments—a gauge that is considered to more closely reflect business spending plans—orders rose a solid 0.7%, much more than anticipated and partly reversing two months of declines. New home sales fell unexpectedly in February, but the report of the decline came in the wake of previous news of a jump in sales of existing homes.

Consumers grow more positive but remain worried

Consumer indicators were mixed. On Tuesday, the Conference Board announced that its index of consumer confidence declined slightly in March, defying consensus expectations for an increase. “Consumers’ assessment of the present situation improved in March,” the Board’s chief researcher noted, “but they also became more pessimistic about the future.”

Better news came on Thursday from the University of Michigan’s rival gauge of consumer sentiment, which was revised upward to its highest level in 21 months, thanks in part to waning inflation fears. “Over the first three months of 2024, consumers have consistently expressed that the economy appears to be holding its course,” its chief researcher noted. “However, with the general election looming on the horizon, many mentioned that their views remain tentative and subject to change.”

Bond markets see heavy issuance ahead of holiday

U.S. Treasuries generated positive returns for the week, and our traders noted that new issuance was easily absorbed. Elevated issuance weighed on the tax-exempt municipal bond market, however, amid a historically weaker seasonal period for the asset class.

In the investment-grade corporate bond market, issuance ended just above expectations and deals in the beginning of the week were oversubscribed. According to our traders, the high yield primary space was also active as some issuers tried to bring new deals to the market ahead of the holiday weekend.

Index Friday's Close Week's Change % Change YTD
DJIA 39,807.37 331.47 5.62%
S&P 500 5,254.35 20.17 10.16%
Nasdaq Composite 16,379.46 -49.36 9.11%
S&P MidCap 400 3,046.36 55.10 9.52%
Russell 2000 2,124.55 52.55 4.81%

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

Most European markets advanced in a week of generally light trading ahead of the Easter holiday weekend, with the STOXX Europe 600 Index reaching a record intraday high and gaining 0.59% in local currency terms. The markets’ gains came despite confirmation of a significant slowdown in some major economies.

European government bond yields declined. The European Central Bank (ECB) has flagged a possible rate cut for June, depending on whether wage growth continues to moderate. With data showing eurozone bank lending stagnated again in February, ECB council member Fabio Panetta was the latest to flag a turn in the rate cycle.

UK slips into recession in Q4

The UK’s Office for National Statistics confirmed on Thursday that the country had entered a technical recession for the first time since early 2020, with the economy contracting by 0.3% in the final quarter of 2023, following a 0.1% contraction in the third quarter.

Germany’s economy shows signs of weakness

Germany’s Federal Statistical Office reported that retail sales had plunged 1.9% in February—well below consensus expectations for a small increase and the biggest drop in 17 months. Meanwhile, leading economic institutes in Germany said that they expected the country's economy to grow by 0.1% in 2024, cutting the prior forecast of 1.3%. High interest rates, weak global demand, and political uncertainty dented hopes for a stronger recovery.

Retail sales in Spain tick up; industrial producer prices decline

Some better news arrived about the Spanish economy. Retail sales rose 0.5% in February, reversing two months of declines. The country’s National Statistics Institute also reported that industrial producer prices had plummeted 8.2% over the 12 months ended in February, helped by a sharp drop in energy prices.

Consumer sentiment improves in eurozone

Perhaps because of the region’s easing energy worries, data suggested that European consumers were growing somewhat more optimistic. On Thursday, the European Commission reported that its gauge of consumer confidence had increased to its highest level in over two years, thanks to “slightly less pessimistic expectations about the general economic situation.” According to the report, consumers’ plans for major purchases remained stable, and industry confidence improved marginally.

Japan

Japan’s stock markets fell through Thursday’s trading. Investor focus was on the sharply depreciating yen, which hovered near JPY 152 against the U.S. dollar —which is perceived by many as a point that could trigger authorities to intervene in the foreign exchange markets to prop up the Japanese currency. The country’s three main monetary authorities suggested after meeting on Wednesday that they could be ready to stage such an intervention, in the strongest hint to date and after the currency dipped to a 34-year low. The historic weakness in the yen has benefited many of Japan’s large-cap exporters, as they derive a significant share of their earnings from overseas.

The yield on the 10-year Japanese government bond fell to about 0.70% on Thursday, from 0.74% at the end of the prior week. This followed the Bank of Japan’s (BoJ’s) historic monetary policy shift, whereby it raised interest rates from negative territory for the first time in about seven years. Market expectations appear to be converging around two more BoJ interest rate hikes within a one-year period.

A member of the BoJ’s Board said that the end of the central bank’s negative rates policy was a first step toward monetary policy normalization. Steps were taken in response to signs that wages were increasing in tandem with prices, an oft repeated precondition for the BoJ to tweak its policy. Nevertheless, Japan’s monetary policy remains among the most accommodative in the world, and financial conditions are expected to remain accommodative as well, for the time being.

Japan’s levels of inbound tourism reportedly exceeded pre-pandemic levels, with travelers from across the world seeking to maximize the benefits of yen weakness. Notably, tourism from China lagged.

China

Chinese stocks declined for the week ended Thursday as concerns about the continuing property sector downturn weighed on investor confidence. The Shanghai Composite Index retreated 1.23%, while the blue chip CSI 300 gave up 0.68%. In Hong Kong, the benchmark Hang Seng Index edged up 0.25%, according to FactSet.

Chinese Premier Li Qiang told participants at the China Development Forum, an annual summit for global business leaders, that the country is open to foreign investment. Premier Li also pledged that the government will step up measures to support growth in several sectors, including biological manufacturing, artificial intelligence, and the data economy. However, Beijing’s pro-business message came as many investors seek evidence that China will further increase policy support to meet its growth goals. Speaking at the same event, International Monetary Fund Managing Director Kristalina Georgieva said that China’s economy could expand a further 20% over the next 15 years if it conducts pro-market reforms, according to prepared remarks.

In economic news, profits at industrial firms surged 10.2% in the January to February period from a year ago and recovered from a 2.3% decline in 2023, according to the National Bureau of Statistics, aided by policy support and increased overseas demand. The year-over-year increase was also supported by a low base of comparison from last year, when China emerged from nationwide pandemic lockdowns. The latest indicators added to evidence that China's economy was gaining traction following data from the prior week showing that industrial production, fixed-asset investment, and retail sales picked up in the two-month period. However, deflationary pressures and the ongoing property market slump continue to weigh on investor sentiment.

Other Key Markets

Hungary

Central bank slows pace of rate cuts amid “increasing financial market risk aversion”

On Tuesday, the National Bank of Hungary (NBH) held its regularly scheduled meeting and reduced its main policy rate, the base rate, from 9.00% to 8.25%. The NBH also reduced the overnight collateralized lending rate—the upper limit of an interest rate “corridor” for the base rate—from 10.00% to 9.25%. In addition, the central bank lowered the overnight deposit rate, which is the lower limit of that corridor, from 8.00% to 7.25%. These 75-basis-point rate cuts, which were smaller than the central bank’s 100-basis-point rate reductions at the end of February, were widely expected.

According to the central bank’s post-meeting statement, policymakers continued to characterize disinflation as being “strong and general in the Hungarian economy.” They also noted that the 3.7% annual consumer price inflation rate in February was within the central bank’s “tolerance band.” However, they anticipate that “the pace of price increases will temporarily rise…in the middle of this year” amid a tug of war between two opposing forces: “The weakening of the forint exchange rate in recent weeks points to a rise in imported inflation. On the other hand, the weaker cyclical position of the domestic real economy in the short term has a disinflationary impact.”

Nevertheless, policymakers justified their decision to reduce interest rates by repeating recent observations that disinflation has been “stronger than expected” in the past few months and that “external and domestic demand pressures have remained persistently low.” They specifically noted that “increasing financial market risk aversion justifies a slower pace” of rate cuts compared with February.

Colombia

Falling inflation enables policymakers to accelerate the pace of rate cuts

Late the previous week, Colombia’s central bank held its scheduled monetary policy meeting and decided to reduce its benchmark interest rate from 12.75% to 12.25%. Five members of the Board of Directors voted for a 50-basis-point rate cut, but two other policymakers favored a larger decrease.

In their post-meeting communiqué, central bank officials noted that annual headline inflation “continued its downward trend” and was measured at 7.7% in February and that one- and two-year median inflation expectations have also been declining. Also, policymakers noted that the central bank’s technical staff reduced their year-end 2024 inflation projection from 5.9% to 5.4% and anticipate that inflation will be close to 3% (plus or minus one percentage point) by mid-2025. Policymakers, therefore, felt justified to accelerate “the pace of interest rate cuts while asserting a policy stance in line with the objective of driving inflation” toward the central bank’s target by mid-2025.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price affiliated companies and/or associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. There is no guarantee that any forecasts made will come to pass.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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