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T. ROWE PRICE GLOBAL EQUITIES

Weekly Market Recap


8 April, 2024

 


Our Multi-Asset Solutions team produce a weekly market recap which aims to summarise the previous week’s major events and developments that may impact markets. They try to include points that may aid you in your decision making or conversations with clients. This is supplemented by a market data sheet, offering a summary of financial market performance. Last week’s summary is below. 

Economic and political backdrop

The UK

Data released by the Bank of England pointed to improvement in the housing market. Net mortgage approvals reached their highest monthly level since June 2022, increasing to 60,400 from 56,500 in January.

The US

The separate indexes of service and manufacturing sector activity of the Institute for Supply Management (ISM) seemed to play a particular role in driving sentiment over last week. Stocks moved lower following the release of the March ISM manufacturing purchasing managers’ index (PMI) reading on Monday, which came in well above expectations and indicated expansion – if barely – for the first time in 16 months. More concerningly from an inflation perspective, the ISM prices paid index also surprised handily on the upside, seemingly confirming recent data showing a rebound in input prices.

Conversely, the ISM services report, released Wednesday, appeared to ease worries. While still indicating expansion, the services index fell back for the second consecutive month – and, more significantly, perhaps, the index of prices paid fell back to its lowest level since pandemic lockdowns began in March 2020. The data seemed to increase hopes for a June Federal Reserve (Fed) rate cut, as reflected in futures prices.

The Friday jobs report from the Labor Department, typically among the most closely watched indicators of growth and inflation pressures, appeared to further reassure investors. Employers added 303,000 jobs in March, well above expectations and the most in nearly a year. Encouragingly, from a wage pressures standpoint, the solid gains came with only a modest increase in average hourly wages, from 0.2% in February to 0.3% in March. Part of the reason may have been a solid rise in the labour force participation rate, suggesting that employers might be enjoying an easier time filling empty slots.

Europe

Headline annual inflation in the eurozone decelerated more than forecast to 2.4% in March from 2.6% in February. Core inflation, which excludes volatile food and energy prices, also slowed to 2.9% from 3.1%. The year-over-year increase in service prices, however, came in at 4.0% for the fifth consecutive month.

Evidence suggests that the economy may be picking up after stagnating for the past year. S&P Global revised its estimate for the eurozone’s composite PMI, which includes services and manufacturing, to 50.3 in March from an initial 49.9. A reading above 50 indicates an expansion of private sector business activity.

Meanwhile, the minutes from March meeting of the European Central Bank (ECB) showed that policymakers were increasingly confident that inflation was slowing to the target level in a timely manner. The majority felt that the case for rate reductions was strengthening but that it would be prudent to wait for key economic data that are scheduled to come out after the ECB’s April meeting.

Minutes of the March meeting of the Swedish central bank suggested that currency developments could become more influential in policy decisions in the months ahead. The Riksbank said it was important that the Swedish krona did not depreciate further, as this could stoke inflationary pressures. The Riksbank left its key rate unchanged at 4.0% in March, adding that it might start cutting rates in May if inflation continued to slow.

Japan

As the Bank of Japan (BoJ) hinted that another interest rate hike may be on the horizon, the yield on the 10-year Japanese government bond rose to 0.77% from 0.72% at the end of the previous week. BoJ Governor Kazuo Ueda signalled that the central bank could use monetary policy to address the historic weakness in the yen. Its primary concern is the impact of the Japanese currency’s weakness on price and wage growth, which have appeared to be on a reflationary trend. The BoJ targets a 2% level of inflation in a sustainable manner, accompanied by growth in wages, and asserts that monetary policy normalisation hinges on these preconditions being met.

Last month, the central bank lifted short-term interest rates out of negative territory for the first time in over seven years – market participants seem to be converging around a view that two more rate hikes within the space of a 12-month period are likely. 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.

China

March’s indicators reinforced hopes that China’s economy may start to recover. The official manufacturing PMI rose to an above-consensus 50.8 in March, up from 49.1 in February, due to a rebound in production and exports and marking the first expansion since September last year. The nonmanufacturing PMI grew to a better-than-expected 53.0 from 51.4 in February. Separately, the private Caixin/S&P Global survey of manufacturing activity edged up to 52.7 in March, in line with expectations and marking its 15th month of expansion.

On the monetary policy front, the People’s Bank of China said in its first-quarter policy report that it would intensify existing measures to encourage demand. The central bank pledged to maintain ample social financing and money supply to support Beijing’s annual growth target of 5% as it grapples with weak consumer confidence.

The value of new home sales by the country’s top 100 developers slumped -49% in March from the prior-year period, easing from the -60% drop in February, according to the China Real Estate Information Corp. Sales rose 93% from the previous month, but remained weak compared with the monthly average of the third and fourth quarters of last year. China’s tumbling property sales remain a drag on the key sector for its economy and have stoked a liquidity crisis among some of its biggest property developers as they struggle to meet loan repayments.

Australia

Australian housing price growth eased to 0.3% month over month in March, while preliminary housing sales volume picked up strongly over the month. Initial submissions to the 2023-24 annual wage review showed a fall, which is consistent with the softer macro environment and slowing inflation. The value of Australian resources exports fell further in February, likely due to the continued decrease in iron ore prices.



Markets

Last week, the MSCI All Country World Index (MSCI ACWI) lost -0.9% (7.4% YTD).

In the US, the S&P 500 Index moved -0.9% lower (9.5% YTD), pulling back from record highs, as US Treasury yields increased in response to signs that the manufacturing sector might finally be gaining traction. Energy stocks outperformed as oil prices reached their highest level since October on worries over rising tensions between Israel and Iran and a decision by major exporters to maintain production limits despite tight markets. Some late strength in Microsoft also boosted the technology sector.

The market’s performance narrowed again, with growth stocks faring better than value shares and large-caps falling less than small-caps. The Russell 1000 Growth Index returned -0.7% (10.7% YTD), the Russell 1000 Value Index -1.3% (7.5% YTD) and the Russell 2000 Index -2.9% (2.2% YTD). The technology-heavy Nasdaq Composite ticked down -0.8% (8.5% YTD)

In Europe, the MSCI Europe ex UK Index gave up -1.3% (6.9% YTD) during the holiday-shortened week, snapping 10 straight weeks of gains. Hawkish comments from some US Fed policymakers and higher crude oil prices cast doubt on the timing of interest rate cuts. Major stock indexes retreated. Germany’s DAX Index declined -1.7% (8.5% YTD), France’s CAC 40 Index weakened -1.8% (7.1% YTD) and Italy’s FTSE MIB Index fell -2.1% (12.7% YTD). Switzerland’s SMI Index lost -2.0% (4.7% YTD). The euro was little changed versus the US dollar, ending the week at USD 1.08 for EUR.

In the UK, the FTSE 100 Index pulled back -0.5% (3.5% YTD) and the FTSE 250 Index decreased -0.7% (0.9% YTD). The British pound was broadly stable versus the US dollar, ending the week at USD 1.26 for GBP.

Japan’s stock markets fell over the week. The TOPIX Index plunged -2.4% (15.2% YTD) and the TOPIX Small Index dropped -2.9% (9.3% YTD). Heightened geopolitical tensions and uncertainty about the US Fed’s monetary policy trajectory weighed on global equities in general, while in Japan, speculation remained rife about whether the authorities would step in to prop up the yen. The Finance Ministry reasserted its readiness to respond to excessive moves in the foreign exchange markets, as the Japanese currency hovered around the high-JPY 151 level against the US dollar, its lowest level in about 34 years. Over the past three years, weakness in the yen has provided a significant boost to Japan’s exporters – companies that tend to derive a major share of their earnings from overseas. The yen ended the weak at JPY 151.6 for USD, compared with 151.4 at the end of last week.

In Australia, the S&P ASX 200 Index fell -1.6% (4.1% YTD) as better-than-estimated US job openings and factory goods orders added to scepticism about the pace of Fed easing this year. Australian long-term government bond yields rose meaningfully with the curve steepening. This resulted in the appreciation of the Australian dollar versus the US dollar by 0.9%.

MSCI Emerging Markets Index closed 0.3% higher (2.7% YTD), with a positive contribution to performance from the stock markets of China, Taiwan and India and a negative contribution from those of South Korea and Brazil.

Chinese equities advanced in a holiday-shortened week, as data added to evidence that the economy could be gaining traction. The Shanghai Composite Index was up 0.9% (3.2% YTD) and the blue-chip CSI 300 Index added 0.9% (4.0% YTD). In Hong Kong, the benchmark Hang Seng Index gained 1.2% (-1.4% YTD). Markets in mainland China were closed on Thursday and Friday in observance of the Qingming Festival, also known as Tomb Sweeping Day, when Chinese people honour their ancestors by cleaning and placing offerings on their tombs. Hong Kong markets were closed on Thursday but reopened on Friday.

In Türkiye, local elections were held on Sunday, 31 March, throughout the country, the results of which surprised many investors. According to T. Rowe Price sovereign analyst Peter Botoucharov, the opposition Republican People’s Party – which was the main loser in the May 2023 general elections – gained about 37% of the national vote and maintained control in all major cities, including the capital Istanbul. In contrast, President Recep Tayyip Erdogan’s Justice and Development Party saw its support drop to approximately 35%.

Botoucharov believes that the outcome could reflect lower voter participation (77% this year versus 87% last year), as well as voters’ disappointment with continuing high inflation and slowing economic growth stemming from rising interest rates. He also believes that Erdogan’s conciliatory post-election speech is noteworthy in that the president emphasised the democratic process, the need to work toward macroeconomic stabilisation, and the importance of reducing inflation over the next few years, when there will be no scheduled elections. In addition, Botoucharov expects Minister of Treasury and Finance Mehmet Simsek and the rest of Erdogan’s economic team to remain in place and the current economic programme to remain intact.

In Poland, the central bank concluded on Thursday its scheduled two-day monetary policy meeting and decided to keep its key interest rate, the reference rate, at 5.75%. Other rates controlled by the central bank were also unchanged.

The post-meeting statement was largely consistent with the last one issued in early March. Policymakers reiterated that “the process of disinflation” in the Polish economy is continuing, with inflation being “driven down by the reduction of cost pressures reflected in falling producer prices, and by the weak growth in economic activity.” They acknowledged that “incoming data indicate an increase in economic activity growth in early 2024,” specifically citing retail sales and industrial production, but noted some weakness in construction and assembly production.

Policymakers highlighted that the annual consumer price index (CPI) declined to 1.9% in March and “estimated that core inflation significantly decreased again.” They expect CPI growth “will run at the level consistent with” the central bank’s inflation target, but they anticipate that “core inflation will remain above CPI inflation” and that higher value-added taxes on food products “will act toward the rise in inflation.” As a result, policymakers decided to keep interest rates unchanged.

Officials once again justified their decision by noting that inflation developments in future quarters are “associated with substantial uncertainty, related in particular to the impact of fiscal and regulatory policies on price developments, as well as the pace of economic recovery…and labour market conditions.” They also mentioned other factors, such as higher energy costs and wage growth, that could lead to higher inflation in the second half of 2024 and over the medium term, respectively.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.7% (-0.7% YTD), Bloomberg Global High Yield Index (hedged to USD) -0.2% (2.4% YTD) and Bloomberg Emerging Markets Hard Currency Aggregate Index -0.4% (0.9% YTD).

Equity investors appeared to welcome the signs of a healthy economy in the jobs report, but the yield on the benchmark 10-year US Treasury note jumped on the news; earlier in the week, it hit its highest intraday level since late November. Over the week, the 10-year Treasury yield increased 20 basis points (bp), to 4.40% from 4.20% (up 52bp YTD). The 2-year Treasury yield increased 13bp to 4.75% from 4.62% (up 50bp YTD).

Over the week, the 10-year German bund yield increased 10bp, ending the week at 2.40% from 2.30% (up 38bp YTD).

The 10-year gilt yield rose 14bp, ending the week at 4.07% from 3.93% (up 54bp YTD).

Issuance was lighter – and in line with expectations – in the US investment-grade corporate bond market. High yield corporate bonds traded lower amid broad macro softness following the strong ISM print. The asset class experienced weakness later in the week due to increased geopolitical risks.

Yoram Lustig, CFA
Head of Multi Asset Solutions,
EMEA and LATAM

Michael Walsh, FIA, CFA
Solutions Strategist

 

Eva Wu,
Solutions Analyst

 



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