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T. ROWE PRICE GLOBAL EQUITIES

Weekly Market Recap


25 March, 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

The Bank of England (BoE) kept its key interest rate unchanged at 5.25% for a fifth consecutive time, although the 8–1 vote in favour appeared to send a more dovish signal. Two previously hawkish policymakers dropped their calls for a hike in borrowing costs; another backed an immediate cut. Governor Andrew Bailey said: “We are not yet at the point where we can cut interest rates, but things are moving in the right direction.” Later, in newspaper interviews, Bailey signalled greater optimism about the economy and told the Financial Times that rate cuts could be “in play” at future meetings.

The BoE’s monetary policy announcement came a day after data showed that annual consumer price growth decelerated to 3.4% in February from 4.0% in January. This latest reading was the lowest inflation rate in more than two years. Underlying price pressures also moderated but remained strong, with services inflation easing to 6.1%. Meanwhile, the early version of S&P Global’s purchasing managers’ survey for March appeared to provide more evidence that the economy may be emerging from recession. For a fifth consecutive month, the composite PMI, which covers the services and manufacturing parts of the economy, remained at levels indicating an expansion in output.

The US

The week’s main driver of sentiment appeared to be the policy meeting of the Federal Reserve (Fed) concluding on Wednesday. As was widely anticipated, policymakers left the federal funds rate unchanged, but investors seemed to take heart from the quarterly release of the Fed’s Summary of Economic Projections, summarising the outlook of individual committee members. The so-called dot plot showed that the median expectation for three rate cuts in 2024 remain unchanged, while the median expectations for interest rates in 2025 and 2026 went up by less than 25 basis points (bp) or by less than one cut.

Investors also appeared encouraged by Fed Chair Jerome Powell’s post-meeting press conference, where he indicated that he was not overly concerned about the uptick in inflation data in January and February, chalking it up to seasonal noise. Powell also pushed back against worries over potential signs of cracks in the labour market, such as the unexpected increase in the unemployment rate in February.

The week’s economic data arguably supported hopes that the economy was continuing to expand without reigniting inflation pressures. Most notable may have been February existing home sales, reported Thursday, which surprised most observers by jumping 9.5%. A gauge of current manufacturing in the Mid-Atlantic region fell back a bit from February’s reading but surprised investors by indicating a second consecutive month of expansion. Encouragingly, prices paid by businesses in the region fell back to their lowest level since May 2020.

Europe

The Swiss National Bank (SNB) unexpectedly reduced borrowing costs by -25bp to 1.5% – the first cut in nine years. The SNB said that it aimed to address lower inflationary pressure and an appreciation of the Swiss franc. Meanwhile, Norway’s central bank kept its policy rate unchanged at 4.5%.

Purchasing managers’ index (PMI) surveys showed that the output of goods and services in the eurozone came close to stabilising in March, with a first estimate recording only a marginal decline, S&P Global said. The eurozone composite PMI rose to a nine-month high of 49.9 from 49.2 in February (PMI readings above 50 indicate an expansion in activity).

Japan

Japanese government bond yields moved lower after the Bank of Japan (BoJ) made a much-anticipated policy shift and exited its negative interest rate policy. The central bank announced that it will set a policy rate target of 0 to 0.1%, up from -0.1%, following reports from the previous week of major companies agreeing to robust pay increases in annual wage talks. The BoJ also ended its yield curve control programme. However, Governor Kazuo Ueda affirmed that financial conditions would remain accommodative as inflation expectations were still below the 2% target.

On the Japanese economic data front, consumer price inflation, as measured by the consumer price index (CPI), rose to a higher-than-anticipated 2.8% annualised over the month of February. This was a sharp pickup from January's 2.0% and well ahead of the BoJ's inflation target.

Meanwhile, the latest PMI data showed that activity within Japan’s private sector expanded at the fastest rate in seven months in March. Much of this is attributable to the strength of the services segment.

China

Property investment in China fell by -9% in the January–February period from a year earlier, slowing from a -24% drop in December, according to official data. Property sales by floor area sank -20.5% in the first two months of the year, after slumping -23% in December. The slower pace of declines in property investment and sales came after Beijing rolled out numerous pro-growth measures to arrest the country’ yearslong real estate slump. However, most investors remain cautious about China’s property sector as developers continue to grapple with high debt levels and weak homebuyer demand.

Other data showed that some parts of China’s economy were picking up. Industrial production rose an above-forecast 7% in January and February from a year earlier, up from December’s 6.8%. Fixed-asset investment grew 4.2% in the first two months of the year from the prior-year period, rising from 3% in December amid higher infrastructure growth. Retail sales rose more than expected over the two-month period as consumption surged during the weeklong Chinese New Year holiday but eased from December’s increase. The urban unemployment rate was 5.3%, while the youth jobless rate edged up to 15.3%.

In other news, Chinese banks left their one- and five-year loan prime rates unchanged at 3.45% and 3.95%, respectively, as expected, after the People’s Bank of China kept its medium-term lending rate on hold the prior week. Many analysts anticipate that the central bank will continue to loosen policy and further reduce its reserve requirement ratio after a surprise cut in January to boost demand.

Australia

The meeting of the Reserve Bank of Australia (RBA) came out largely as expected with no change in policy rate. The guidance was interpreted as dovish, though, as the RBA dropped the possibility to tighten further in its communications. The RBA will remain data dependent and did not declare victory yet on inflation. The labour market data, on the other hand, exceeded expectations by adding 117,000 jobs in February versus 40,000 expected. It was clear that seasonal factors played a role after a disappointment in the prior month. Still, employment growth is now back to trend, supporting the view that the economy might continue to prove to be more resilient than anticipated. Indeed, the flash March composite PMI was up to 52.4, the highest since April.



Markets

Last week, the MSCI All Country World Index (MSCI ACWI) gained 1.8% (7.9% YTD).

In the US, the S&P 500 Index moved 2.3% higher (10.1% YTD) and the technology-heavy Nasdaq Composite surged 2.9% (9.6% YTD), pushing the S&P 500 and the Nasdaq to new records, as investors welcomed news that Fed policymakers were still anticipating three interest rate cuts later in the year. Communication services led the gains along with technology shares. A late rise helped artificial intelligence (AI) chipmaker NVIDIA reach a record high on Friday, lifting the company’s market capitalisation near USD 2.4 trillion. Reports that Apple might partner with Google parent Alphabet in offering generative AI tools also boosted sentiment. Health care and real estate shares lagged. Trading the following week was scheduled to end on Thursday in observance of the Good Friday holiday.

Growth stocks outperformed value shares and small caps lagged large caps. The Russell 1000 Growth Index returned 2.8% (12.1% YTD), the Russell 1000 Value Index 1.7% (7.0% YTD) and the Russell 2000 Index 1.6% (2.5% YTD).

In Europe, the MSCI Europe ex UK Index firmed 0.7% (7.6% YTD). Dovish signals from central banks boosted risk-on sentiment, but major stock indexes were mixed. Germany’s DAX Index ticked up 1.5% (8.7% YTD), France’s CAC 40 Index gave up -0.1% (8.3% YTD) and Italy’s FTSE MIB Index put on 1.3% (13.8% YTD). Switzerland’s SMI Index was down -0.2% (5.8% YTD). The euro weakened versus the US dollar, ending the week at USD 1.08 for EUR, down from 1.09.

In the UK, the FTSE 100 Index rallied 2.7% (3.6% YTD) and the FTSE 250 Index rose 1.1% (0.7% YTD). The British pound depreciated versus the US dollar, ending the week at USD 1.26 for GBP, down from 1.27.

Japanese equities gained over the week primarily on yen weakness resulting from the BoJ’s unexpectedly hawkish tilt (it raised interest rates earlier than had been priced in by most market participants and for the first time since 2007). The TOPIX Index rallied 5.3% (18.9% YTD) and the TOPIX Small Index climbed 3.5% (12.2% YTD). The Nikkei 225 and TOPIX reached record-high levels. Sentiment was also supported by expectations that the US Fed will cut interest rates in 2024, given the state of inflationary conditions and the economy’s growth prospects.

In Australia, the S&P ASX 200 Index gained 1.3% (4.0% YTD) supported by the dovish tone from the Fed and the RBA. The Australian market underperformed its global peers due to some weakness in commodity producers. The Australian 10-year government bond yield dropped by -10bp on the back of a dovish statement from the RBA. The Australian dollar dropped by -0.6% for the week in light of a strong US dollar.

MSCI Emerging Markets Index closed 0.5% higher (2.0% YTD), with a positive contribution to performance from the stock markets of Taiwan, India, South Korea and Brazil and a negative contribution from those of China.

Chinese equities retreated as concerns about the property sector slump offset optimism about better-than-expected economic data. The Shanghai Composite Index was down -0.2% (2.5% YTD) and the blue-chip CSI 300 Index retreated -0.7% (3.3% YTD). In Hong Kong, the benchmark Hang Seng Index lost -1.3% (-2.8% YTD).

In Brazil, the central bank reduced its benchmark interest rate by -50bp to 10.75%, in line with market expectations. The monetary policy committee (Copom) also adjusted its guidance, calling for a cut of the same magnitude at its May meeting, assuming macroeconomic trends continue. This shift from the more open-ended “meetings” used in previous communications appeared to suggest that the pace at which the central bank eases monetary policy could slow as early as June. Copom’s statement cited “heightened uncertainty” around the domestic inflation outlook as well as the debate over monetary policy decisions taking place in key developed economies as potential reasons for caution.

In Mexico, the Bank of Mexico trimmed its key interest rate by -25bp to 11% – the first reduction since it started tightening monetary policy in 2021. The governing board’s statement indicated that future monetary policy decisions would hinge on whether incoming data suggest that inflation is on track to reach its 3% inflation target. On the front, the central bank slightly adjusted its headline inflation estimate, projecting that the annual change in consumer prices would end 2024 at 3.6% compared with its previous estimate of 3.5%. Policymakers also acknowledged that upside risks to inflation remain.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.6% (-0.2% YTD), Bloomberg Global High Yield Index (hedged to USD) 0.8% (2.5% YTD) and Bloomberg Emerging Markets Hard Currency Aggregate Index 0.9% (1.1% YTD).

The news from the Fed helped drive a decline in longer-term US Treasury yields over the week. The 10-year Treasury yield decreased -11bp to 4.20% from 4.31% (up 32bp YTD). The 2-year Treasury yield decreased -14bp to 4.59% from 4.73% (up 34bp YTD).

European government bond yields declined on a weak PMI for Germany and a reduction in Swiss interest rates. Over the week, the 10-year German bund yield decreased -12bp, ending the week at 2.32% from 2.44% (up 30bp YTD).

In the UK, bond yields fell after the BoE struck a dovish note at its policy meeting. The 10-year gilt yield decreased -17bp, ending the week at 3.93% from 4.10% (up 40bp YTD).

Issuance in the US investment-grade market was largely oversubscribed during the week, and high yield issues were also met with solid demand. Meanwhile, there was strong demand in the secondary loan market from managers of collateralised loan obligations.

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

Michael Walsh, FIA, CFA
Solutions Strategist

 

Eva Wu,
Solutions Analyst

 



202403 - 3468479

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