Global Markets Weekly Update

U.S.

Stocks climb back toward record highs on light volumes

The S&P 500 Index neared its all-time high and recorded its third consecutive week of gains. The other major indexes also advanced, with value stocks generally outperforming growth shares. T. Rowe Price traders noted that market volumes were especially low over much of the week, however, with Wednesday marking the lowest notional (in terms of the value of shares traded) session of the year and its third-lightest volume (in terms of number of shares traded) session.

The quiet trading week appeared to reflect a generally light and unsurprising economic calendar, although some individual stocks moved sharply in reply to first-quarter earnings releases. Most prominently, perhaps, Walt Disney shares fell 9.5% on Tuesday after the company beat earnings estimates but warned that subscriber growth in its online streaming business was likely to slow. Likewise, a prediction for slowing revenue growth appeared to lead to an 18.6% drop in shares of online retail platform Shopify on Wednesday.

Jobless claims hit highest level since August

A surprise rise in weekly jobless claims seemed to dominate the week’s sparse economic calendar—at least in the eyes of investors. The number of people claiming unemployment benefits rose to 231,000 in the week ended the previous Wednesday, its highest since last August. Likewise, continuing claims broke a four-week downward streak and rose to 1.79 million.

Friday brought another sign that the labor market and broader economy might be cooling. Before the start of trading, the University of Michigan reported that its preliminary index of consumer sentiment in May tumbled unexpectedly to 67.4, down from a final reading of 77.2 in April and marking its lowest level in six months. “While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions,” the survey’s chief researcher noted. “They expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”

Bond markets continue to absorb hefty new supply

The yield on the benchmark 10-year U.S. Treasury note ended the week relatively unchanged after dipping to a nearly one-month intraday low on Tuesday. (Bond prices and yields move in opposite directions.) Tax-exempt municipal bonds rallied alongside Treasuries throughout much of the week despite heavy primary issuance. According to our traders, the market absorbed the new supply readily, with the new deals experiencing strong demand from both retail and institutional buyers. 

Our traders noted that new deals in the investment-grade corporate market also generally saw healthy levels of oversubscription despite the primary calendar having its second-busiest week of the year in terms of new issue volume, with the volume almost doubling weekly expectations. Sentiment appeared to improve in the high yield bond market as equities traded higher.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 3.01% higher on better-than-expected corporate earnings and increased optimism that major central banks would soon start cutting interest rates. Major stock indexes also rose sharply. Germany’s DAX gained 4.28%, France’s CAC 40 Index put on 3.29%, and Italy’s FTSE MIB added 3.06%. The UK’s FTSE 100 Index climbed 2.68% to a fresh record high.

BoE keeps rates unchanged, moves closer to policy easing

The Bank of England (BoE) held its key interest rate steady at 5.25%, while indicating that it could ease policy as soon as June. Deputy Governor Dave Ramsden joined Swati Dhingra in voting for a rate cut of 0.25%. BoE Governor David Bailey also said rates may need to be reduced more than markets expect, although he emphasized that the decision would depend on incoming data. The BoE also updated its economic forecasts. It now expects inflation to slow more sharply to 1.9% in 2026 and to 1.6% in 2027.

Wieladek: BoE may be poised to cut rates in June

The BoE signaled that an interest rate cut in June is on the table, according to T. Rowe Price European Economist Tomasz Wieladek. Ramsden’s vote for reducing rates could be important, Wieladek says. Historically, Ramsden’s voting pattern has been a leading indicator of moves by the rest of the Monetary Policy Committee. Wieladek believes that a decision to lower borrowing costs in June is likely as long as the labor market and services inflation data in the next two months do not surprise significantly to the upside.

UK pulls out of recession

The UK economy expanded by a much stronger-than-expected rate of 0.6% in the first quarter of 2024, exiting a recession that started in the second half of last year, according to a first estimate from the Office for National Statistics. Expansion in services and increases in production supported growth.

Sweden’s central bank cuts rates

The Riksbank lowered its key interest rate by a quarter point to 3.75%, the first reduction since 2016. It said that if the outlook for slowing inflation still holds, the policy rate could be cut two more times in the second half of the year.

Japan

Japan’s Nikkei 225 Index and the broader TOPIX Index registered marginal weekly losses. This was within the context of Bank of Japan (BoJ) Governor Kazuo Ueda hinting that the central bank could raise interest rates early if upside risks to the price outlook emerge, given that inflation may have become more susceptible to the effects of weakness in the yen. With U.S.-Japan interest rate differentials remaining very high, some observers believe that another interest rate hike is unlikely to support sustainable yen appreciation.

Yen depreciates further, despite recent currency interventions

Over the week, the yen depreciated to the high-JPY 157 range against the USD, from about 153. This was despite market participants converging around the view that authorities had recently intervened on two occasions in the foreign exchange markets to prop up the yen, as suggested by the BoJ’s accounts. 

Participants at BoJ’s April meeting turned overwhelmingly hawkish

The yield on the 10-year Japanese government bond finished the week broadly unchanged at around the 0.9% level, near a six-month high. A summary of opinions expressed at the BoJ’s April meeting showed participants turning overwhelmingly hawkish, with one hinting at an accelerating pace of monetary policy normalization. Another opined that the path for interest rates may be higher than currently priced in by the market. Many market participants are pricing in two rate hikes within a one-year period. 

However, some signs of weakness in economic data may delay the BoJ’s rate hike plans. Real, or inflation-adjusted, wages fell 2.5% in March from a year earlier, worse than the previous month’s 1.8% drop. The BoJ continues to reiterate its view that a “virtuous cycle” of growth in prices rising to its 2% target accompanied by wage inflation is a precondition for further monetary policy normalization. While the central bank has ended its negative interest rate policy, its monetary policy stance remains among the most highly accommodative in the world. 

China

Chinese stocks advanced as recovery hopes rose following buoyant holiday spending during the prior week’s Labor Day holiday. The Shanghai Composite Index rose 1.6%, while the blue chip CSI 300 gained 1.72%. In Hong Kong, the benchmark Hang Seng Index added 2.64%, according to FactSet. 

Tourism revenue over the five-day break rose 7.6% compared with the 2023 holiday and surpassed pre-pandemic levels, according to data from the Ministry of Culture and Tourism. Domestic revenue rose 12.7% from last year, while international trips also picked up. Box-office sales reached RMB 1.53 billion, roughly in line with the prior year. However, average spending per traveler fell 11.5% from 2019 as consumers remained cautious about spending.

In economic news, the private Caixin/S&P Global survey of services activity reached 52.5 in April, down from March’s 52.7, as expected, and marked its 16th monthly expansion. Readings above 50 indicate an expansion from the prior month. The Caixin/S&P composite purchasing managers’ index, which tracks both the services and manufacturing sectors, edged up to 52.8 from 52.7 in March as overall business activity expanded in April.

Trade data exceed forecasts 

China’s exports rose by 1.5% in April from a year earlier, up from a 7.5% decline in March, and broadly in line with consensus estimates. Exports to Southeast Asian nations improved, while European shipments fell. Sales to the U.S. were little changed. Imports climbed a better-than-expected 8.4% in April, reversing March’s 1.9% decline, which some analysts attributed to increased raw materials shipments rather than improved consumer demand. The overall trade surplus increased to USD 72.35 billion, up from USD 58.55 billion in March.

Other Key Markets

Türkiye (Turkey)

Late the previous week, credit ratings agency S&P Global Ratings upgraded Türkiye’s sovereign credit rating from B to B+. As reported by Reuters, the upgrade was driven by expectations for coordination between the government’s fiscal, monetary, and income policies to continue improving. T. Rowe Price sovereign analyst Peter Botoucharov was not surprised by the upgrade, as it follows on the heels of a similar upgrade by Fitch Ratings in March. He notes that future upgrades to the sovereign credit rating are likely to depend on factors such as the sustained implementation of more orthodox policies, adjustments to external accounts, the rebuilding of foreign exchange reserves, and the removal of macro prudential regulations in the foreign exchange and local interest rates markets.

Brazil

On Wednesday, Brazil’s central bank reduced its key interest rate, the Selic rate, by 25 basis points, from 10.75% to 10.50%. The decision was not unanimous; it was a split vote, with five policymakers favoring a 25-basis-point rate cut while four preferred a 50-basis-point cut. However, the size of the rate reduction was mostly in line with market expectations.

Our analysts noted that policymakers did not provide forward guidance and that the post-meeting statement seemed hawkish. For example, policymakers—despite a split decision—unanimously judged “that the uncertain global scenario and the domestic scenario, marked by resilient economic activity and de-anchored expectations, require greater caution.” Also, the committee of policymakers also reinforced “with special emphasis that the extension and adequacy of future changes in the interest rate will be determined by the firm commitment of reaching the inflation target in the relevant horizon.”