Market Review

Global Markets Weekly Update

August 07 2020

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.


S&P 500 nears record high

Stocks recorded solid gains for the week, pushing the technology-heavy Nasdaq Composite Index to new highs and lifting the S&P 500 to within roughly 1.2% of its February record peak. The small-cap Russell 2000 Index outperformed by a wide margin, helping it recover some of its lost ground for the year to date. Industrials shares benefited from hopes for new aid to airlines, while health care stocks lagged. It was the last major week of the earnings season, with 132 S&P 500 companies scheduled to report second-quarter results, according to Refinitiv.

Manufacturing expands, while weekly jobless claims resume decline

Stocks drifted higher through much of the week, although T. Rowe Price traders noted that catalysts for the move were perhaps harder to identify than usual, and trading was subdued relative to recent months. The week’s busy economic calendar appeared to play some part in supporting sentiment. Manufacturing signals remained encouraging, with July factory orders rising more than expected and the Institute for Supply Management’s gauge of factory activity surprising on the upside to reach its highest level since early 2019. The Institute’s services sector gauge also came in better than expected.

Labor market data seemed to further encourage investors. A daunting 1.2 million Americans filed weekly jobless claims, but this broke a string of two weekly increases and marked the lowest level since the onslaught of the pandemic and business closings in early March. On Wednesday, ADP announced a much smaller-than-expected rise in its tally of July private payrolls, but the Labor Department’s official July count surprised on the upside when it was released Friday—employers added 1.76 million jobs in the month, fostering a further decline in the unemployment rate, from 11.1% to 10.2%. The underlying data were perhaps less encouraging, with much of the payroll increase due to the timing of a seasonal adjustment to educational hiring. The labor force participation rate also dropped slightly.

Stimulus remains uncertain

With extended unemployment benefits having expired the previous Friday, investors also kept a close eye during the week on progress—or the lack thereof—in negotiations on a new fiscal stimulus package. Our firm’s traders noted a brief sell-off on Tuesday afternoon following a Republican senator’s estimation that stimulus talks might take another two weeks. Optimism seemed to rebound on Wednesday, however, after 16 Republican senators announced support for a new USD 25 billion in aid for the U.S. airline industry. On Thursday, markets seemed to get another boost after lawmakers pledged to keep working on a package, while President Donald Trump tweeted that he had instructed his staff to continue assembling an executive order related to a payroll tax cut, eviction protections, unemployment extensions, and student loan repayment options.

The yield on the benchmark 10-year Treasury note touched a new five-month low on Thursday before increasing on Friday following the jobs report from the Labor Department, leaving it modestly higher for the week. (Bond prices and yields move in opposite directions.) Driven by strong demand, the broad municipal market posted gains and outperformed Treasuries by a wide margin through most of the week. With short-term yields near all-time lows, many investors continued to look for opportunities in longer-maturity municipals. Once again, taxable deals composed a meaningful share of overall municipal issuance, headlined by Hawaii’s sale of nearly USD 1 billion in taxable general obligation bonds.

Assets continue to flow into corporate bond market despite prominent bankruptcies

The investment-grade corporate bond market saw steady new issuance, and most new deals were met with solid demand, according to T. Rowe Price traders. Some encouraging economic data appeared to bolster market sentiment and tighten credit spreads, and the volume of new deals was at the high end of expectations.

Positive flows provided technical support for the high yield market by helping offset new issuance that was surprisingly strong for August, according to our traders. In issuer-specific news, Lord & Taylor became the latest major retailer to file for Chapter 11 bankruptcy protection—JCPenney, J. Crew, and Neiman Marcus have also filed this year—as the retail segment continues to be severely impacted by the coronavirus pandemic.

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.


European shares rose on signs that an economic recovery may be gaining traction and hopes for more U.S. stimulus. However, escalating tensions between the U.S. and China and fears that Europe could suffer a resurgence of coronavirus cases curbed equity markets’ gains. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 2.03% higher, Germany’s Xetra DAX Index rose 2.94%, France’s CAC 40 gained 2.21%, and Italy’s FTSE MIB climbed 2.22%. The UK’s FTSE 100 Index advanced 2.28%.

Eurozone purchasing managers’ index (PMI), German manufacturing pick up

Eurozone business activity strengthened in July, signaling the fastest growth rate in two years, according to final data based on surveys. The composite index, which combines manufacturing and services output, rose six points to 54.9. However, firms operated with considerable spare capacity and continued to shrink their headcounts. German industrial production continued to recover in June, rising 8.9% on the month, compared with 7.4% in May. On a year-over-year basis, the country’s industrial output declined 11.5%.

“The ECB [European Central Bank] is committed to providing the monetary stimulus needed to support the eurozone economy,” said ECB Chief Economist Phillip Lane in the first policy comment since ECB President Christine Lagarde’s July 16 press conference. In the same blog post, Lane asserted that despite the bounce in economic activity “the level of economic slack remains extraordinarily high and the outlook highly uncertain.” His comments raise the possibility that the ECB could further expand its Pandemic Emergency Purchase Program in September, when the bank updates its economic forecasts.

BoE Sees Slower UK Recovery

The Bank of England (BoE) forecast that the UK economy would contract 9.5% this year, less than the 14% projected in May. The BoE also predicted a slower recovery, with the economy clawing back its losses by the end, rather than by the middle, of 2021. The report was published alongside its latest policy decision, which, as expected, held interest rates at 0.1% and the bond-buying program at GBP 745 billion. BoE Governor Andrew Bailey reiterated that negative interest rates were part of the bank’s toolkit but there were no plans to use them.

Newspaper reports suggested the UK might add Belgium and France to its quarantine list after a sharp rise in cases. The UK is also monitoring infection trends to determine whether other countries, such as the Netherlands, should be placed on the quarantine list. The Times reported that the lock-down area in northern England might be expanded. Swiss health authorities said they would impose a quarantine on travelers from Spain, except those coming from the Canary and Balearic Islands.


Following a steep decline at the end of July, Japanese stocks rallied in the first week of August. The Nikkei 225 Stock Average advanced 620 points (2.9%) and closed at 22,329.94. The widely watched market benchmark has returned -5.6% for the year-to-date period. The large-cap TOPIX Index and the TOPIX Small Index, broader measures of Japanese stock market performance, also posted strong gains. The yen was little changed over the week and remained below JPY 106 per U.S. dollar.

Kuroda discusses the BoJ’s response to the global pandemic

In a webinar hosted by the Center of Japanese Economy and Business at the Columbia Business School on August 5, Bank of Japan (BoJ) Governor Haruhiko Kuroda addressed the central bank’s responses to the fallout from COVID-19, the disease caused by the coronavirus. The BoJ’s three-pronged effort has included providing funds to financial institutions, the unlimited purchases of Japanese government bonds under yield curve control, and active purchases of exchange-traded funds and real estate investment trusts to support positive investor sentiment.

While Kuroda thinks that Japan’s economy will begin to improve over the remainder of fiscal 2020, as many countries gradually restart their economies, the pace of improvement is expected to be moderate because coronavirus preventative measures will continue to hinder economic growth. The central bank governor believes Japan’s economy can expand 3% to 4% in fiscal 2021. The governor said the central bank will continue to keep a weather eye on the economic impact of the coronavirus and will not hesitate to provide support for financing and maintaining stability in financial markets.

LDP lawmaker suggests killing the VAT

Hiroshi Ando, a junior Liberal Democratic Party (LDP) lawmaker who is close to Economy Minister Yasutoshi Nishimura, has suggested that the value-added tax (VAT) be eliminated given that Japan is currently mired in a deep recession. Reuters reported that Ando inferred that the government's decision to raise the sales tax rate to 10% from 8% in October last year was an error. Ando said, "We need to revive the economy by pushing the sales tax rate back to zero…It's absolutely essential that Japan eliminate the tax altogether." Prime Minister Shinzo Abe, whose popularity has dipped sharply due to his handling of the coronavirus pandemic, was dismissive of repealing the sales tax. Abe believes that VAT revenues are necessary to fund services and the well-being of Japan’s aging population.


Mainland Chinese markets rallied after data lifted confidence in the economic recovery. The large-cap CSI 300 Index and benchmark Shanghai Composite Index each posted solid gains, even after declining on Friday on news that the Trump administration tightened restrictions on Chinese social media networks TikTok and WeChat in the U.S. In another sign of the growing tech rift between the U.S. and China, San Jose-based video conferencing company Zoom, which gained popularity during the pandemic, said that it would halt direct sales to China and only provide video conferencing services through third-party partners.

In currency trading, the yuan gained 0.2% versus the U.S. dollar to close at 6.96. In fixed income markets, the sovereign 10-year bond yield edged higher amid signs of a turnaround in the economy. China reported record inflows of USD 24 billion in July, roughly doubling June’s total, underscoring the attractiveness of its bond market to foreign investors. Interbank rates in China have risen across all maturities since June, reflecting the People’s Bank of China’s relative restraint compared with other global central banks in adding liquidity to the financial system. After the release of the central bank’s second-quarter monetary policy report on August 6, market participants believe that the People’s Bank of China is satisfied with the pace of recovery and will keep policy rates stable for the time being.

In economic readings, investors drew encouragement from July’s Caixin/Markit manufacturing PMI, which climbed to nearly a decade-high reading of 52.8 from June’s 51.2 (readings above 50 indicate improving conditions). Exports rose by a better-than-expected 7.2% in July from a year earlier after a 0.5% gain in June, according to China’s General Administration of Customs, reflecting a surge in demand from countries that recently reopened their economies. Excluding medical equipment, China’s exports rose 4.7% last month. Taken together, the latest export data showed that China’s exports have already returned to pre-pandemic levels.

Other Key Markets

Turkish shares fall on foreign exchange concerns

Turkish stocks, as measured by the BIST-100 Index, returned -5.9%. Shares extended the previous week’s weakness, and the lira fell sharply, as overnight lending rates in Turkey’s financial system spiked amid continuing concerns about the central bank’s depletion of its foreign exchange reserves and, thus, its ability to defend the lira in global currency markets. Long-term sovereign bond yields also climbed due to the inflationary implications of Turkish currency weakness (e.g., higher import prices).

Amid reports that major global financial institutions were having difficulty completing currency transactions that involved the lira, Turkey’s banking regulator and the government announced on Thursday some policy measures intended to stabilize the situation. The banking regulator indicated that it will ease restrictions on lira currency trading for major global investment banks. The government also declared that it will phase out the targeted additional liquidity facilities that it established earlier this year because recent fiscal and monetary policies have succeeded in containing the effects of the pandemic and maintaining the productive capacity of the economy.

Overall, T. Rowe Price Sovereign Analyst Peter Botoucharov believes that these measures should reduce market volatility, allow local interest rates to return to more normal levels, and provide sufficient lira liquidity for normal functioning of trade and market flows. He also believes that the gradual removal of the emergency liquidity facilities could lead to reduced government pressures for credit growth, as well as limited and better targeted fiscal support measures.

Brazil’s central bank cuts rates

Stocks in Brazil, as measured by the Bovespa Index, returned about -0.1%. On Wednesday, the central bank reduced its benchmark lending rate, the Selic rate, from 2.25% to 2.00%. This reduction, which was widely expected, brings the Selic rate to a new all-time low. In their post-meeting statement, central bank officials noted that "...due to prudential and financial stability issues, the remaining space for the use of monetary policy, if any, should be small.” T. Rowe Price Sovereign Analyst Richard Hall believes that the central bank is likely to keep rates steady at its next policy meeting on September 15–16 but that policymakers may be willing to consider another 25-basis-point interest rate reduction at some future point.

Based on his interpretation of the central bank’s longer-term forward guidance on interest rates, Hall believes that there will be no rate hikes at least until the projected rate of inflation in the subsequent 12-month period is closer to the central bank’s inflation target. Hall believes that this depends, in part, on the legislature maintaining fiscal discipline and not materially breaching the mandated spending cap. According to a constitutional amendment that took effect about four years ago, the growth rate of Brazil’s government spending is not supposed to exceed the country’s inflation rate over a 20-year stretch.

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