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.



 Benchmarks mostly higher as investors await news on trade deal

The major indexes ended mostly higher as investors continued to await firm details on the progress of U.S.-China trade negotiations. The large-cap Dow Jones Industrial Average and S&P 500 Index managed to establish record highs, as did the technology-heavy Nasdaq Composite Index. The small-cap benchmarks lagged and ended roughly flat. Within the S&P 500 Index, health care shares outperformed thanks in part to a late rally in insurer shares following the White House’s announcement of new rules requiring disclosure of rates negotiated with hospitals. Energy stocks trailed, weighed down by a decline in Exxon Mobil. High-valuation growth shares generally outperformed slower-growing value stocks.

T. Rowe Price traders reported that anticipation of a “phase one” trade deal between the U.S. and China continued to be a major driver of sentiment. Having dismissed China’s assertion the previous week that the two sides had agreed to a series of tariff reductions, President Donald Trump nevertheless continued to state that negotiations were making progress. Hopes had grown that the president would offer some further details in a speech to the New York Economic Club on Tuesday, but he merely stated that a trade deal was “close.” Deepening unrest in Hong Kong later in the week also led to growing concerns that a possible clampdown by China would result in a in further split between the two nations. Stocks ended the week on a strong note, however, after White House Economic Adviser Larry Kudlow told reporters that negotiators were coming down to “short strokes.”

Powell: Fed on hold as manufacturing weakness appears contained

While the week brought the first public testimony as part of the House impeachment inquiry, investors seemed to pay more attention to Federal Reserve Chair Jerome Powell’s appearance before the House’s Budget Committee on Thursday. Powell gave further indications that the Fed was again in “pause” mode after cutting rates for the third time this year in October and would need to see a material change in economic conditions before making further adjustments. Powell also offered assurances that he saw few signs that the recent downturn in manufacturing was spilling over into the much larger services sector.

Indeed, data released Friday appeared to confirm the growing dichotomy in the economy. On Friday, the Fed reported that industrial output declined 0.8% in October, its sixth monthly drop in 2019 and the worst since May 2018—although the now-resolved strike at GM was largely to blame. A gauge of manufacturing activity in the New York region also disappointed, and capacity utilization in factories, mines, and utilities fell to its lowest level in two years. Conversely, October retail sales reversed the previous month’s drop, and the University of Michigan’s preliminary gauge of consumer expectations in November rose more than anticipated.

Bonds: Treasury yields fall back from three-month high

The good news retail sales data seemed to spark a small rise in bond yields on Friday, but the yield on the benchmark 10-year Treasury note decreased over the week as a whole, over the week on concerns that the “phase one” U.S.-China trade deal may be stalled. Core (less food and energy costs) consumer price inflation data remained soft in October but was generally in line with expectations. The month-over-month reading showed a 0.2% increase, while the 12-month reading moved down a tick from 2.4% to 2.3%.

The investment-grade corporate bond market was largely focused on issuance, and most new deals performed well. The health care/pharmaceuticals segment was particularly strong, and a highly anticipated deal from AbbVie garnered strong interest, according to the firm’s traders. Issuance for the week was in line with expectations, with the AbbVie deal accounting for more than half the total volume.

Largest U.S. dairy firm files for bankruptcy

Both corporate earnings reports and new issuance were the focus of the high yield market during the abbreviated trading week, although political and economic uncertainty reduced investors’ risk appetite and led to some market weakness. In issuer-specific news, Dean Foods, the largest U.S. dairy company, filed for bankruptcy protection and confirmed that it’s in negotiations with the Dairy Farmers of America to sell most of its assets. The company’s bonds traded significantly lower.

The broad municipal market posted positive total returns but underperformed the rally in Treasuries. Strong demand in the primary market led several new deals to reprice lower in yield and caused an increase in the size of the largest deal of the week—income tax-secured revenue bonds and revenue refunding bonds from the District of Columbia.

U.S. Stocks1


Friday's Close

Week's Change % Change YTD





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S&P MidCap 400




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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.



European stocks follow U.S. equities higher

Equity markets in Europe were mostly higher, buoyed by hopes for a U.S.-China trade deal and continued strength in U.S. stocks. The pan-European STOXX Europe 600 Index gained 0.2%, and the exporter-heavy German DAX rose 0.08%, while the UK’s FTSE 100 Index dropped about 1%.

Germany avoids technical recession

The latest German data showed the economy avoided recession, growing 0.1% in the third quarter. Germany’s manufacturing sector has been hurt by the U.S.-China trade dispute, Brexit uncertainty, and a disruption in its auto industry. Thus far, the manufacturing recession has not spilled into the services sector. The European Union Statistics office also reported that the eurozone economy grew at a modest 0.2% from the previous quarter and 1.2% on the year.

UK economy grows at slowest pace in decade

The UK also avoided recession, but the economy grew at its slowest annual rate in about a decade, pressured by Brexit uncertainty. The economy grew 1% in the quarter. Moody’s lowered its outlook for the UK economy to negative from stable, citing political and social divisions that have impeded the UK’s ability to make policy decisions. As the December 12 general election nears, the number of people employed fell the most in more than four years in the third quarter. Even so, the labor market remains tight, with the unemployment rate near a record low of 3.8%.


Japan’s markets posted modest losses for the week. The Nikkei 225 Stock Average fell 67 points and closed on Friday at 23,325.37. For the year to date, the Nikkei 225 is ahead about 16%, while the large-cap TOPIX Index and the TOPIX Small Index are ahead approximately 14%. The yen was modestly stronger for the week and closed at ¥108.52 per U.S. dollar on Friday.

GDP growth slows in the September quarter

The Japanese economy expanded at an annualized 0.2% pace in the third quarter of 2019. Economic growth slowed sharply from the 1.8% pace in the second quarter of this year and came in well below the 0.8% median market forecast. The preliminary gross domestic product (GDP) growth data released on Thursday was the weakest since the third quarter last year when GDP fell 2.0%. The domestic demand data were solid and showed that the economy held up well in the period leading up to the consumption tax increase; however, a run down in inventories trimmed the quarterly GDP figure by 1.2%. Overall, the decline in exports outweighed the gains from domestic demand. Several economists said that they expected economic weakness in the fourth quarter even if inventory levels were replenished because higher taxes would likely hurt consumer spending.

Lower tax revenues expected in fiscal 2019

The Japanese government is preparing to trim its tax revenue estimate for fiscal 2019 (ending March 31, 2020) by approximately ¥1 trillion to ¥2 trillion, from ¥62.50 trillion ($575 billion). The culprit is falling corporate earnings due to weakness in the global economy. Many firms are cutting their revenue and earnings forecasts—due to declining exports—which is resulting in lower tax revenues. The Finance Ministry reported that first-half tax revenue (through September 30) had declined about 10% from the year-ago period. According to government sources, the potential second-half revenue decline could be larger and would likely prompt the government to propose a supplementary budget and issue additional deficit-covering bonds.


Chinese stocks decline on disappointing economic data     

Chinese stocks recorded a weekly loss as a trio of weaker-than-expected indicators underscored the U.S.-China trade war’s impact on the economy as talks over a partial “phase one” trade deal dragged on with no firm commitment on either side to end the dispute.

For the week, the benchmark Shanghai Composite Index lost 2.5%, its largest weekly decline since September, and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, fell 2.4%.

The latest evidence of China’s flagging economy arrived Thursday, when the government reported disappointing data for industrial output, retail sales, and fixed-asset investment. Industrial output and retail sales—formerly a bright spot in China’s economy—both grew much less than forecast in October. Fixed-asset investment in urban areas, a proxy for construction activity, rose a weaker-than-expected 5.2% in the first 10 months of this year, the lowest reading in comparable data since 1998, according to Bloomberg.

The week’s data raised the prospect that Beijing would step up easing measures to bolster an economy under growing strain from U.S. trade tariffs. Last month, President Trump said that the U.S. and China had reached an interim trade pact that both sides could sign by November and would lay the groundwork for a broader agreement. However, optimism about a pending deal has since fizzled as officials from both sides tamped down expectations about the timing of any deal, while trade talks hit a snag this week over a dispute regarding China’s purchase of U.S. agricultural products, The Wall Street Journal reported Thursday. Even if the U.S. and China manage to reach an interim deal, the risk of a reescalation in trade tensions will persist into the runup to the 2020 elections, believes T. Rowe Price Washington Policy Analyst Katie Deal.

Other Key Markets

Chilean shares rise as lawmakers agree to process to rewrite constituion

Stocks in Chile, as measured by the IPSA Index, rose about 3.6% for the week. Social protests continued for a fourth straight week with few signs of letting up. The central bank took measures to stabilize the peso and boost liquidity in the currency market, while government officials offered to revise the constitution that was created during the Pinochet era. Early Friday morning, Chilean lawmakers agreed on a process to rewrite the constitution, helping spark a sharp rally in stocks and the peso when markets opened. According to Bloomberg, Chile will hold a referendum in April on whether to rewrite the constitution and whether it would be drafted by Congress, a Constituent Convention, or some combination of the two.

T. Rowe Price Sovereign Analyst Aaron Gifford notes that many observers are nervous because the government seems to be making many concessions to the protestors in the heat of the moment. Gifford, however, is less concerned, as Chile is well equipped to deal with the challenges given its robust economic and fiscal framework, and any important decisions are likely to be well thought out before being finalized.

Turkish shares gain despite EU sanctions

Turkish stocks, as measured by the BIST 100 Index, returned approximately 2% for the week despite the European Union’s decision to impose sanctions on Turkey for drilling for energy resources off the coast of European Union (EU) member Cyprus, the northern part of which has been occupied by Turkey since 1974. Turkey’s President Recep Tayyip Erdogan threatened to retaliate by releasing captured Islamic State terrorists into Europe.

On Wednesday, U.S. President Donald Trump met with Erdogan at the White House. While the leaders characterized their meeting as constructive, they did not reach resolutions on two major issues: Turkey’s purchase of Russian military hardware, which the U.S. rejects because of its potential threat to F-35 jets used by NATO members, and Turkey’s recent incursion into northern Syria to go after U.S.-allied Kurdish fighters, which Erdogan considers to be terrorists.

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