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.



Containment hopes help push stocks to new records

Stocks recorded a second week of solid gains as investors seemed to grow more confident about the containment of the new coronavirus (officially designated on Wednesday as COVID-19). The gains brought the large-cap indexes and the Nasdaq Composite Index to record highs, with the latter receiving an extra boost from the continued strong performance of technology stocks. T. Rowe Price traders noted that trading volumes trailed off considerably early in the week, however, hitting year-to-date lows on Monday. The small real estate sector outperformed within the S&P 500 Index, helped by strong gains in the shares of cellular tower operators. Consumer staples shares lagged.

Powell: “too early to say” how COVID-19 will impact economy

Some encouraging data on a stabilization in COVID-19 infections helped spur gains for much of the week, before a jump in reported cases on Thursday seemed to cause a pullback. (See the China section below for a more detailed discussion of the virus and its impact.) Investors also seemed reassured by Federal Reserve Chair Jerome Powell’s congressional testimony on Tuesday and Wednesday, in which he indicated that the policymakers were “closely monitoring” the spread of the virus.

While Powell also remarked that it was “just too early to say” how the global economy would be affected, a consensus seemed to grow that the Fed would cut rates in the coming months. By Friday, according to CME Group data, investors were pricing in a high (82%) chance of a federal funds rate cut in 2020, with approximately an almost equal (46%) chance of two cuts or more. The Fed’s announcement Thursday that it was shrinking the size of its purchases of Treasury bills to support the so-called repo market for short-term lending seemed to derail the day’s rally, however.

The focus on the virus may have taken the spotlight off some other important and potentially negative developments on the U.S.-China trade front. On Monday, the Department of Justice (DOJ) indicted four members of the Chinese military for their alleged role in stealing data from credit reporting firm Equifax in 2017. On Thursday, the DOJ announced a racketeering investigation into Chinese telecom giant Huawei Technologies for allegedly engaging in stealing intellectual property from U.S. firms.

The week’s economic signals were mixed, particularly on the labor market. On Tuesday, the Labor Department reported that job openings had fallen sharply in December and reached their lowest level in two years. Weekly jobless claims, reported Thursday, remained near multi-decade lows, however. Friday brought news that retail sales had expanded a respectable 0.3% in January, but industrial production had declined for the second consecutive month. Boeing’s shutdown of its 737 MAX airliner production and the impact of COVID-19 on supply chains are leading many economists to push back their expectations for a recovery in the U.S. manufacturing sector.

Longest-term Treasury yields reach record low

Pandemic fears may have played a role in pushing the 30-year Treasury bond yield to a record-low 2.061% at an auction on Thursday, but the yield on the benchmark 10-year bond ended the week roughly unchanged. (Bond prices and yields move in opposite directions.) The broad municipal market continued to perform well, and the largest deal of the week, $2.5 billion of Texas-based Grand Parkway Transportation Authority bonds, was met with strong investor demand, according to the firm’s traders. Puerto Rico general obligation bonds continued to be heavily traded following the previous week’s restructuring settlement.

The investment-grade corporate bond market saw balanced buying and selling activity, according to T. Rowe Price traders, although the energy sector experienced volatility, largely due to concerns about the impact of the coronavirus on global oil demand. Among high yield issuers, Sprint bonds traded higher after a federal judge ruled in favor of T-Mobile’s takeover of the company.

U.S. Stocks1
Index 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.



European shares rose to record highs as coronavirus fears waned, but they lost steam at the end of the week on news of a sizable increase in cases in China. The pan-European STOXX Europe 600 Index ended the week 1.43% higher, while Germany’s Xetra DAX Index rose 1.69%, and France’s CAC-40 Index gained 0.69%. The UK’s FTSE 100 Index was little changed.

UK chancellor of exchequer resigns

Chancellor of the Exchequer Sajid Javid unexpectedly resigned after Prime Minister Boris Johnson ordered him to replace his advisers with those from No. 10 Downing Street. The resignation, just three weeks before the budget is to be presented, jolted financial markets, but the UK pound rose and gilts slipped on speculation that his deputy Rishi Sunak, a former Goldman Sachs banker, would unveil a big spending boost. Before the general election, Javid had apparently persuaded Johnson to adopt a commitment to balance the day-to-day budget by 2022–2023, limiting the scale of any spending increase. The Times of London reported that senior government officials conceded that the so-called fiscal rules, which include the commitment to a balanced budget, were under review and could be loosened.

BoE Carney: low rates for foreseeable future

Outgoing Bank of England (BoE) Governor Mark Carney said in testimony to the House of Lords that the UK’s bank rate, now at 0.75%, is “going to be relatively low for the foreseeable future, and that adjustments to rates will be relatively modest, or certainly upward adjustments to interest rates we would expect to be relatively modest.” Higher government spending and more business investment are needed to raise the low rate of UK economic growth, he said. The current low interest rate environment made it a good time to borrow to invest, he added. In an interview with Reuters, he said that central banks are closely monitoring the impact of the coronavirus outbreak and may have to “look through” one or two quarters of data when assessing monetary policy.

Eurozone growth slows, UK stagnates

Eurozone economic growth slowed as expected in the fourth quarter of 2019 due to contractions in France and Italy. The economy of the 19 countries expanded 0.1% on the quarter, from 0.3% in the previous three months, and rose 0.9% on the year, revised down slightly from an earlier estimate. France’s gross domestic product (GDP) shrank 0.1% and Italy’s contracted 0.3% in the fourth quarter. Germany and the UK both stagnated, although annual growth rates in both countries were stronger than expected. In Germany, some previous quarters were revised higher, while in the UK, construction and services benefited from a “Boris bounce.”


Japanese stocks drifted lower in the holiday-shortened trading week. The Japanese equity markets were closed on Tuesday for National Founding Day. The Nikkei 225 Stock Average declined 140 points (0.6%) for the week and closed at 23,687.59. The widely watched stock market barometer remained in positive territory for the year to date, however. The large-cap TOPIX Index and the TOPIX Small Index also logged weekly losses, but both broader market yardsticks are underwater for the year to date. The yen stood at ¥109.90 per U.S. dollar on Friday.

Odds of a technical recession increase due to coronavirus impact

The first estimate of Japan’s GDP growth for the final quarter of 2019 is scheduled for release on Monday, February 17. Most economists believe that the Japanese economy contracted about 4% in the period, largely due to the October 1 consumption tax hike, the slowdown in global growth, and weather factors, including typhoons. The outlook for current-quarter GDP growth is also looking less robust than earlier projections. The COVID-19 outbreak has dented consumer sentiment, travel, and tourism and hurt manufacturers because of supply chain disruptions. While most forecasters expect the long-term impact from the outbreak to be modest—the Bank of Japan has forecast positive GDP growth in each of the coming three fiscal years—back-to-back quarterly contractions meet the technical definition of recession.

Abe getting pushback on blanket pay increases

Despite Prime Minister Shinzo Abe’s urging for 3% annual wage increases to boost consumer consumption and increase inflation, large companies have raised workers’ compensation by only 2% on average over the past six years. Many business leaders are reluctant to offer across-the-board pay increases, preferring merit-based increases. Data from the Japan Productivity Center show that, in 2018, nearly 58% of Japanese firms had adopted merit-based pay systems, up from less than 18% in 1999.


China’s equity markets were calm despite the media's continuing focus on COVID-19, helping domestic A-shares post their first rise in four weeks. The large-cap CSI 300 Index gained 2.4% week on week, ahead of a 1.4% advance for the Shanghai Composite index. A sharp rise in the number of reported coronavirus cases on Thursday caused only a modest dip as markets rallied again on Friday. Chinese equities drew strength from the firm tone of global markets, supported by positive U.S. inflation and jobs data, and by President Xi Jinping's promise of an “all-out war” to defeat the coronavirus outbreak. 

China announced an additional 15,000 cases of COVID-19 due to a diagnostic reclassification, which brought Wuhan and Hubei back in line with other provinces. As a result of a backlog, the number of cases jumped from over 40,000 to over 60,000, triggering a risk-off response in Asian and global equities on Thursday. Surprisingly, the negative sentiment quickly reversed. Investors believed the diagnostic change was not an attempt to massage the numbers but was due to Hubei's shortage of test kits and an urgent need to prevent scarce hospital beds being taken by patients who later proved false positives.

The World Health Organization also soothed fears when it said new cases outside Hubei were falling after allowing for the adjustment in reporting standards while the mortality rate in China outside Hubei (0.4%) was no higher than in other countries. In a rare move, Beijing dismissed Hubei's top two Communist Party leaders plus some senior public health officials. Shanghai mayor, Ying Yong, a close ally of President Xi, was sent to Wuhan to take charge of the crisis. His first move was to increase strict quarantine restrictions at the micro level of the residential estate, which could add to the economic costs.

First cracks appear in the global supply chain

Perhaps the greatest economic uncertainty associated with the coronavirus lies with global supply chain disruptions due to post-Chinese Lunar New Year factory closures and far-reaching domestic travel and quarantine restrictions—rough estimates based on travel data suggest that only around 25% to 30% of New Year travelers may have returned to their home province. Global manufacturing companies within China, such as Tesla, Nissan, and Airbus, have mostly followed the government's guidelines on factory and plant closures. Taiwan’s Foxconn, a maker of smartphones for companies including Apple, said it would reopen its Shenzhen factory, but it could take several weeks to resume full production.  

Shutdowns have also rippled across China’s borders, with three South Korean auto manufacturers announcing plant closures due to a shortage of key components from China. Hyundai suspended production for a week when it ran out of wiring harnesses, 87% of which are sourced from China. Most observers agree that similar cases of disruption are likely to surface as long as the quarantine and factory shutdowns in China persist.

Smaller company finances vulnerable to coronavirus

Investors are also concerned about the impact of the coronavirus on China's small and mid-size companies (SMEs). A survey by Tsinghua and Beijing Universities found that 34% of SMEs said they could only survive for one month without any revenues, while a third expected they would need to borrow more from banks. Beijing's financial support package on February 2 specifically targets emergency financial assistance for smaller companies that are suffering unexpected revenue losses because of the coronavirus. Effective implementation of these new policies is going to be critical, especially if financial help has to be channeled via the banking system.

Other Key Markets

Brazilian shares rise on hopes for rebound in commodity exports to China

Shares in Brazil, as measured by the Bovespa Index, returned about 0.5%. Equities rose early in the week amid hopes that the coronavirus’ economic impact to China—a major consumer of commodities and natural resources developed and exported by Brazil and other Latin American countries—will not be as severe as previously feared.

The market also benefited from the release of the Central Bank of Brazil’s minutes from its monetary policy meeting last week, which indicated that central bank officials have shifted to a “data-dependent” policymaking mode and are not necessarily finished reducing interest rates. According to the minutes, the central bank “considers that it is important to observe the effects of the monetary stimulus cycle that started in 2019.” Also, central bank officials believe that “a better understanding of these effects is essential to determine the next steps in monetary policy.”

Stocks surrendered much of their gains on Thursday and Friday, and the Brazilian real continued to grind lower during the week against the dollar; in fact, it has fallen more than 6% versus the greenback since the end of 2019. According to T. Rowe Price sovereign analyst Richard Hall, the currency’s year-to-date depreciation has some fundamental basis, in terms of both volume and prices of exports to China. While the central bank began selling $1 billion of U.S. dollar-Brazilian real swap contracts on Thursday—and continued intervening in the foreign exchange market on Friday—in an apparent attempt to stabilize the real, Hall notes that it may be hard to justify central bank intervention, given that market liquidity is sufficient, that the real does not seem extraordinarily dislocated versus other emerging markets currencies, and that a couple of Brazilian officials have no objections to a weaker currency.

Mexican shares rise on rate cut hopes

Mexican stocks, as measured by the IPC Index, returned about 1.4%. Shares benefited from improved sentiment in emerging markets, as well as proximity to the solid performance of U.S. equities. Investors also anticipated that the central bank would reduce interest rates. Indeed, on Thursday, Banco de Mexico reduced its overnight interbank interest rate from 7.25% to 7.00%.

According to T. Rowe Price sovereign analyst Aaron Gifford, central bank officials see inflation as being a bit higher than previously expected—even as they see economic growth coming in weaker. Even though a negative output gap, a stronger exchange rate, and weaker oil prices are positive for inflation dynamics, central bank officials are worried about “sticky” core inflation, including slightly higher core inflation expectations, a rebound of non-core components, wage hikes that are above productivity gains, and a potential deterioration in public finances. As such, Gifford believes that Banco de Mexico will continue to be cautious even if it does reduce its tight monetary policy to a more neutral level.

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