Market Review

Global Markets Weekly Update

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.



Stocks continue strong start to 2019

Stocks recorded their fourth consecutive week of positive returns and built on their strong start to 2019. The gains pulled the large-cap benchmarks out of correction territory, or within 10% of their recent highs, but the Nasdaq Composite Index and the smaller-cap benchmarks remained below that threshold. Within the S&P 500 Index, financials shares led the gains, helped by better-than-expected earnings reports from some large banks. The defensive utilities and consumer staples sectors lagged the overall market, with the former also dragged lower by a bankruptcy announcement from Pacific Gas and Electric (PG&E) due to expected liabilities from the recent California wildfires. Trading volumes were somewhat muted, especially early in the week, and volatility, as measured by the Cboe Volatility Index (VIX), continued its recent downward trend.

Conflicting signals on China trade negotiations

The ongoing U.S. trade dispute with China remained a significant driver of sentiment. A poor start to the week on Monday seemed partly due to news of a sharp decline in Chinese exports (see below). A report in The Wall Street Journal on Wednesday that the U.S. was pursuing a criminal probe against Chinese telecom giant Huawei Technologies also took some of the steam out of a rally, according to T. Rowe Price traders, although markets managed to close higher for the day. Conversely, markets appeared to jump Thursday on reports that Treasury Secretary Steven Mnuchin had suggested lowering tariffs on some Chinese goods as a gesture of good will in trade negotiations. The White House later denied the accounts, however.

On Friday, stocks surged again on a Bloomberg report that, earlier in the month, Chinese officials offered to eliminate the country’s trade surplus with the U.S. by 2024, but U.S. officials demanded quicker action. Most economists agree that trade balances between countries depend in part on relative savings rates, making eliminating the U.S.’s overall deficit difficult to achieve by fiat—particularly as the federal deficit continues to grow.

Earnings growth expected to slow from rapid pace earlier in 2018

The quarterly earnings reporting season began in earnest during the week, with reports from 35 S&P 500 companies expected, according to Thomson Reuters. Analysts polled by both Reuters and FactSet have recently lowered their estimates and expect the earnings growth rate for the S&P 500, as a whole, to have declined by roughly half in the fourth quarter from its 25% year-over-year pace earlier in the year. Analysts generally expect earnings to grow only modestly in the first quarter of 2019, when the impact of the December 2017 corporate tax cut on year-over-year earnings comparisons rolls off.

The week’s economic reports seemed generally to grow brighter as the week progressed. Surveys of regional manufacturing activity offered a conflicting picture early in the week, with a sharp slowdown in New York juxtaposed against an acceleration in the mid-Atlantic region. Overall figures on industrial production released late in the week were more encouraging, with a Federal Reserve index of manufacturing output recording its biggest gain in December in nearly a year. Evidence emerged that the federal government shutdown and recent market declines were taking a toll on consumer attitudes, however. On Friday, researchers at the University of Michigan announced that their gauge of consumer sentiment had declined to its lowest level in over two years.

Bonds: Yields rise as safe-haven bid fades

Longer-term bond yields rose for the week, as favorable economic data and continued equity gains lured investors away from the perceived safe haven of Treasuries. (Bond prices and yields move in opposite directions.) The municipal market started the week subdued, with most of the week’s activity centered around a $5 billion new issuance calendar. Most investors seemed to be patient in waiting to invest their January coupons, according to the firm’s traders, and the low activity in the market seemed to be centered around short-term issues. General obligation bonds from the Commonwealth of Puerto Rico struggled after an announcement that the federal oversight board is seeking to void nearly $6 billion worth of bonds issued in 2012 and 2014. The board contends that the bonds were issued in violation of the Commonwealth’s constitutional debt limits.

Investment-grade corporate bond spreads tightened across most sectors. The market rallied after the UK Parliament rejected the prime minister’s Brexit deal (see below), with UK and U.S. banks outperforming. Issuance for the week was slightly less than expected as of the close on Thursday. The firm’s traders observed steady buying across the credit curve, with less inventory available.

Technical conditions in the high yield market were supportive due to the combination of modest new issuance, the largest weekly inflow to high yield bond funds in roughly two years, and low dealer inventories. For much of the week, the market was focused on the timing of the PG&E bankruptcy filing and the implications for bondholders.

U.S. Stocks1


Friday's Close

Week's Change % Change YTD





S&P 500




Nasdaq Composite




S&P MidCap 400




Russell 2000




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 Associates’ presentation thereof.



Stocks rise amid hopes for better U.S.-China trade relations

European stocks rose in line with global markets this week amid signs that the U.S. and China could resolve trade tensions and an increased likelihood that Brexit will be delayed after UK Prime Minister Theresa May’s Brexit proposal was overwhelmingly defeated in Parliament.

Pound rises as May’s historic Brexit defeat means likely delay of UK’s EU exit

In the UK, the prime minister’s government survived a no-confidence vote after her Brexit deal was overwhelmingly rejected by a 432 to 202 vote in the House of Commons. May has until Monday to present a new plan and has begun cross-party negotiations; however, she and opposition leader Jeremy Corbyn were deadlocked, presenting competing Brexit alternatives.

While May’s defeat was historic, T. Rowe Price fixed income manager Quentin Fitzsimmons notes that recent events have raised hopes for a “soft” Brexit as May is now compelled to try and build cross-party consensus in a bid to avoid the risk of no Brexit at all. A delay to Brexit is certainly in the cards, which is a positive for UK assets. In line with this increased likelihood, the British pound and FTSE 100 Index rose slightly on the week.

Requesting a delay from the EU carries its own risks, however. Parliament could face a popular backlash if it called for a delay, and party leaders appear reluctant to be associated with one—let alone the nuclear option of calling Brexit off entirely.

Germany’s economic growth is slowest in five years

Data showed that Germany’s economy decelerated sharply last year due to slowing consumer spending and weakness in key export markets. Gross domestic product grew 1.5% in 2018, the weakest rate in five years, compared with 2.2% in 2017.


The Nikkei 225 Stock Average gained 306 points (1.5%) for the week and closed on Friday at 20,666.07, ahead 3.25% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also rose and ended the week with year-to-date gains of 4.25% and 3.05%, respectively. Japanese equities were lifted by positive developments in the U.S.-China trade dispute, as well as reports that China is taking steps to stimulate its economy. At the close of trading on Friday, the yen stood at ¥109.50 per U.S. dollar versus ¥109.69 at the end of 2018. Japanese markets were closed on Monday for Coming of Age Day.

Japanese headline inflation rises at slowest pace since 2017

Year-over-year inflation fell to 0.3% in December from 0.8% in November, reflecting price declines in food, housing, and transportation. The headline inflation rate is at its lowest level since October 2017. Core inflation, which excludes fresh food prices, increased just 0.7% in December year on year, according to the Statistics Bureau, well below the Bank of Japan’s 2% annual inflation target.

Central bank expected to trim inflation forecast at January policy meeting

The Bank of Japan’s (BoJ) first policy meeting of the year is scheduled for January 22–23. The central bank is expected to cut its inflation forecast for fiscal 2019, which begins in April, to about 1.0%. The latest forecast, which was made in October 2018, expected core consumer inflation of about 1.4%. The central bank is likely to trim its outlook based on the recent decline in oil prices and slower global economic growth. The BoJ is expected to maintain its current monetary policy targets—guiding short-term interest rates at -0.1% and long-term bond yields at around 0.0%. The 10-year Japanese government bond ended Friday with a yield of 0.013%, little changed from a week earlier.

Machinery orders slowed in November

Japan’s core machinery orders (which excludes orders from electric utilities and for ships) declined 6.4% month to month in November, according to data from the Cabinet Office. The weakness was primarily due to the slowdown in the electronics and steel manufacturing industries. The U.S.-China trade war was cited as the main factor weighing on the sector as exporters delay investments and hiring due to uncertainties about global growth. Service sector orders rose, however, on an increase in orders from parcel delivery and logistics companies.


Stocks gain as optimism grows for a trade resolution with the U.S.

China’s stock markets rose, as optimism about a resolution in the trade rift with the U.S. grew following reports that the Trump administration was mulling rolling back tariffs on Chinese imports to advance negotiations. For the week, the Shanghai Composite Index added 1.7%, and the large-cap CSI 300 Index, China’s blue chip benchmark, rose 2.4%. Friday’s gains marked the third-straight weekly advance as well as the biggest weekly gains in two months for both benchmarks. Hopes for a trade deal grew after The Wall Street Journal reported Thursday that U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and a tariff rollback during trade talks scheduled for January 30 in Washington. Separately, Bloomberg reported Friday that China has proposed a six-year buying spree of U.S. goods with a combined total of more than $1 trillion to eliminate the country’s trade surplus with the U.S. by 2024.

Both reports were the latest signs of growing momentum toward a possible resolution in a bilateral trade standoff that has increasingly weighed on China’s economy and the foreign multinational companies that do business there. On Monday, China reported that passenger car sales fell in 2018 from the prior year—the first annual decline since 1990—as economic uncertainty curbed consumer spending. The drop in car sales was discouraging news for many U.S. and European carmakers that had counted on China to drive many years of unbroken growth. This year, China reportedly plans to lower its official annual growth target to a range of 6.0% to 6.5%, down from roughly 6.5% in 2018, as it copes with weakening domestic demand and the impact of U.S. tariffs.

Other Key Markets

Turkish stocks rally on central bank decision to keep rates steady

Turkish stocks, as measured by the BIST 100 Index, surged about 7.4%—one of the market’s strongest weeks in several years. The market benefited from an improved tone among world markets, as well as news—reported by CNBC—of the Chinese central bank’s record-setting cash injection equivalent to $83 billion into the Chinese banking system, to increase liquidity.

The main catalyst lifting the market, however, was the central bank’s decision not to raise short-term interest rates. The Central Bank of the Republic of Turkey left its key interest rate, the one-week repo auction rate, at 24%. With the most recent inflation reading around 20%—versus a 25% peak in October 2018—the Turkish lira was supported by the central bank’s inaction, as well as policymakers’ assurance that “if needed, further monetary tightening will be delivered.”

While T. Rowe Price Sovereign Debt Analyst Peter Botoucharov believes that Turkish inflation has probably peaked, he believes it will remain at or above its current level for the next few months, in part because of the lagging effects of last year’s steep lira depreciation. Botoucharov notes that the Turkish economy is going through a fast adjustment, credit growth is negative, and domestic demand has been weak since August. If these trends are sustained, he believes that headline inflation could fall in the second half of the year to about 15%.

Brazilian shares hit new highs

Shares in Brazil rose about 2.6%, pushing the Bovespa Index further into record territory. The Sao Paulo market also benefited from global investors’ willingness to embrace risk again following a brutal fourth quarter in 2018. Closer to home, however, the main driver of the market was anticipation that President Jair Bolsonaro’s government would soon have a much-needed pension reform plan ready to present to the legislature.

According to T. Rowe Price Sovereign Analyst Richard Hall, Bolsonaro’s market-friendly Economy Minister, Paulo Guedes, is expected to present a pension reform proposal to the president in the days ahead. After returning from the annual World Economic Forum in Davos, Switzerland, Bolsonaro is likely to make the tough decisions on controversial issues such as how much to raise the retirement age and whether to include the military in the pension reform. Hall believes that Guedes will probably propose some changes to military pensions, which could be the first real test of whether and how much Bolsonaro will support politically painful ideas.

Tap to dismiss

Manage Subscriptions

Unsubscribe All

Manage your watched Funds and Insights subscriptions here.


Change Details

Congratulations! You are now registered.

Begin watching and receiving email updates for:


Sign in to manage your subscriptions and watch list.



Latest Date Range
Download Cancel

Institutional Content

I have read and agree to the terms and conditions
Confirm Cancel

This content is restricted for Institutional Investors use only. We were not able to validate your status as an Institutional Investor with the information you provided at registration.

Please contact the T. Rowe Price Team with questions or to revise your status.


You will need to accept the Terms & Conditions again.


You have updated your email address.

An activation email has been sent to your new email address from T. Rowe Price.

Please click on the activation link in order to receive email updates.


You have an existing account

Click OK to view your subscriptions and watch list.


Confirm Cancel