Market Review

Global Markets Weekly Update

August 05 2022

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 mixed after strong jobs report

Stocks were mixed for the week as a much stronger-than-expected jobs report revived investor concerns that the Federal Reserve will need to maintain an aggressive pace of interest rate hikes to tamp down high inflation. The Nasdaq Composite. Russell 2000, and S&P 500 Index finished with gains, while the Dow Jones Industrial Average and S&P MidCap 400 recorded negative results. Equity markets continued to receive support from above-consensus corporate earnings reports.

Friday’s payrolls report from the Labor Department showed employers added 528,000 nonfarm jobs in July, more than double consensus expectations of around 250,000, and May and June estimates were revised up by a combined 28,000. Following the strong July gains, total nonfarm employment in the U.S. has now returned to its pre-pandemic level. The unemployment rate fell to 3.5%, matching its February 2020 level. Job gains were widespread, with leisure and hospitality, professional and business services, and health care showing notable hiring.

Fed officials remain firm on facing down inflation

Markets had interpreted Fed Chair Jerome Powell’s comments following the central bank’s July 26-27 policy meeting in a dovish light and priced in more limited policy tightening as a result. However, the strong payroll numbers seemed to indicate that the Fed has significant room to raise interest rates. Even before the release of the employment data on Friday, a number of Fed officials had pushed back against the market’s dovish narrative and signaled that the central bank is still committed to raising rates until inflation is under control.

In other economic news, initial jobless claims edged up to 260,000, which was in line with projections. Service sector growth unexpectedly accelerated last month, based on Institute for Supply Management (ISM) survey data. Meanwhile, ISM’s reading of manufacturing sector growth came in above expectations but fell to its lowest level since June 2020.

U.S. Treasury yields increase

The strong payroll report and hawkish messaging from Fed officials helped drive U.S. Treasury yields higher over the week, outweighing downward pressure from rising U.S.-China tensions following House Speaker Nancy Pelosi’s visit to Taiwan. (Bond prices and yields move in opposite directions.) Meanwhile, the broad tax-exempt bond market traded modestly higher through most of the week. Weekly municipal fund flows industry-wide returned to positive territory during the most recent week measured by Refinitiv Lipper, and continued demand for short- and intermediate-term municipals helped push relative yield ratios between AAA rated tax-free bonds and similar-maturity Treasuries back below their historical averages.

According to our traders, investment-grade corporate bonds were resilient despite an uptick in supply, although the technology sector traded lower amid new issuance from some prominent names. The news that U.S. investment-grade corporate bond funds experienced their first weekly inflow since March 2022 also supported the asset class. High yield corporate bonds benefited from positive cash flows and improving risk sentiment.

U.S. Stocks

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's presentation thereof.


Shares in Europe weakened on expectations that central banks would continue to raise interest rates aggressively in a bid to smother inflation. In local-currency terms, the pan-European STOXX Europe 600 Index slipped 0.59%. The major market indexes, however, advanced. Germany’s DAX Index climbed 0.67%, Italy’s FTSE MIB Index gained 0.81%, and France’s CAC 40 Index ticked up 0.37%. The UK’s FTSE 100 Index added 0.22%.

Core eurozone government bond yields ended broadly level. Yields fell early on due to a rise in tensions between the U.S. and China over Speaker of the House Nancy Pelosi’s arrival in Taiwan. However, hawkish commentary from Federal Reserve officials helped drive yields up again ahead of some key U.S. data releases. UK gilt yields broadly followed core markets but ended the week slightly higher after the Bank of England (BoE) increased rates by a large amount and warned a recession could be looming.

BoE raises interest rates, inflation forecast

The BoE raised its key interest rate by 50 basis points (0.50 percentage point) to 1.75%, the biggest increase in 27 years. It also projected that inflation would hit 13.3% by October because of surging energy prices. The central bank expects inflation to remain “very elevated” through 2023 and to recede in two years’ time to its 2% target. It forecast that a recession lasting five quarters would begin this winter.

Eurozone unemployment rises, manufacturing shrinks

The number of unemployed people rose in the eurozone for the first time in 14 months in June, according to the European Commission’s statistics bureau. The jobless rate remained unchanged at a record low of 6.6%, but the number of job seekers increased by 25,000 to just under 11 million.

The eurozone manufacturing sector contracted last month, with final data in July purchasing managers’ surveys conducted by S&P Global signaling the sharpest decline in production since the initial wave of COVID-19 lockdowns in spring 2020. New orders fell the most since the eurozone sovereign debt crisis in 2012.

German economic slowdown deepens

German manufacturing activity contracted in July for the first time in two years, as new orders dropped and firms grew increasingly pessimistic about the outlook, according to final data in a survey of German purchasing managers compiled by S&P Global.

Official data for June showed that the value of German exports rose for a third month running, swelling by 4.5% and pushing the seasonally adjusted trade surplus to EUR 6.4 billion. The deficit recorded in May—the first in 30 years—was revised up to a surplus of EUR 0.8 billion. German retail sales dropped by a record 8.8% year over year in June. Manufacturing orders fell 0.4% sequentially, mostly due to a decline in new orders outside the eurozone.


Japan’s stock markets gained over the week, with the Nikkei 225 Index rising 1.35% and the broader TOPIX Index up 0.35%. Upbeat domestic corporate earnings supported share prices, but concerns about heightened tensions between China and the U.S. capped returns. Export-oriented Japanese firms continued to benefit from a weak yen, which finished the week at around JPY 133 against the U.S. dollar, broadly unchanged from the prior week.

The yield on the 10-year Japanese government bond (JGB) fell to 0.16%, from 0.18% at the end of the previous week, reflecting global recession risks. An official from the Ministry of Finance said that, although nothing specific has yet been decided, investors should start preparing for a normalization in Japanese bond trading, as the Bank of Japan (BoJ) will one day no longer be the main buyer of JGBs. The BoJ’s yield curve control policy entails purchasing an unlimited amount of JGBs to defend an implicit 0.25% cap around its zero percent yield target.

Government panel backs record minimum wage hike

Against the backdrop of rising inflationary pressures (which, nevertheless, remain low in Japan compared with other developed economies), a government panel agreed on a record hike in the average minimum wage for all workers for fiscal year 2022. Although wages have risen in Japan, growth has been muted—the BoJ believes that wage increases are necessary for achieving its 2% inflation target. The central bank’s aim is to achieve a virtuous cycle between wages and prices, leading to an improvement in people’s living standards, but there is still a long way to go to achieve this objective. It has consistently cited this as a reason for supporting economic activity by continuing with monetary easing.

Japan’s private sector activity broadly stagnates

The latest composite purchasing managers’ index (PMI) data signaled that private sector output broadly stagnated in July. Services activity growth moderated sharply, as the boost that companies received from the lifting of domestic coronavirus restrictions showed signs of waning, and they also had to contend with high input price inflation. Manufacturers signaled a slower improvement in operating conditions, with both output and new orders contracting. Across the private sector, the year-ahead outlook weakened—firms cited concerns about muted economic conditions, inflation, a sluggish yen, and the war in Ukraine.


China’s stock markets eased as geopolitical tensions, mortgage boycotts, and tepid economic data kept buyers on the sidelines. The broad, capitalization-weighted Shanghai Composite Index fell 0.8% and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen dipped 0.3%, Reuters reported.

U.S. House of Representatives Speaker Nancy Pelosi’s trip to Taiwan infuriated Beijing, which held live-fire drills in the waters around the self-ruled island and imposed sanctions on Pelosi and her immediate family. Chinese chipmakers’ shares jumped as traders bet that the government would increase support for the domestic semiconductor industry at a time when the U.S. is ramping up efforts to curb China’s rise in chip manufacturing. Last week, the U.S. Congress passed the CHIPS and Science Act, which aims to prop up the U.S. semiconductor industry and contains restrictions on chip firms considering expanding in China.

On the economy front, the official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the 50-point mark that separates contraction from growth and the lowest in three months. The non-manufacturing business activity index fell to 53.8 from 54.7 in June and the composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

Meanwhile, the Caixin China General Manufacturing PMI fell to a weaker-than-expected 50.4, although still in expansionary territory as manufacturing continued to recover from recent coronavirus lockdowns.  The official PMI largely focuses on large state-owned enterprises, while the private Caixin survey concentrates on smaller, export-oriented companies.

New home prices and sales volume fell in July from a month earlier, according to property research firm China Index Academy, as a growing nationwide movement among homebuyers to stop paying mortgages on unfinished projects weighed on sentiment.

Foreign investors continued to cut holdings in Chinese bonds in July and dumped equities for the first time in four months, according to the Institute of International Finance (IIF). Chinese debt outflows totaled around USD 3 billion last month, while USD 6 billion exited other emerging markets, IIF estimated. Foreign outflows from China’s stock markets totaled roughly USD 3.5 billion in July compared with inflows of USD 2.5 billion into other emerging markets. Equity outflows occurred after China reported a sharp slowdown in the second quarter, while rising U.S. Treasury bond yields have made Chinese bonds relatively less attractive for investors.

The 10-year Chinese government bond yield eased to 2.752% from 2.775% a week ago, according to Dow Jones. China’s benchmark 7-day interbank repo rate fell below 1.3% during the week, the lowest since May 2020, a decline that analysts attributed to flush liquidity conditions rather than policy easing. The yuan was flat against the U.S. dollar ahead of the July U.S. nonfarm payrolls report on Friday.

Other Key Markets


At the end of July, Colombia’s central bank decided to raise its key lending rate by 150 basis points (1.50 percentage point), from 7.50% to 9.00%, its highest level since 2009. The move was largely expected. According to T. Rowe Price emerging markets sovereign analyst Aaron Gifford, the central bank’s post-meeting statement was hawkish, as indicated by commentary around increasing inflation and inflation expectations as well as much stronger economic growth. Governor Leonardo Villar also mentioned in the post-meeting press conference that the “real” (inflation-adjusted) neutral rate has been increasing on the back of higher core inflation rates and risk aversion, although he opined that the pace of rate hikes would slow in subsequent meetings given that the tightening cycle is in a more mature phase.


Turkish stocks, as measured by the BIST-100 Index, returned about 6.1%. During the week, the government reported that headline consumer price index (CPI) inflation in July was measured at a month-over-month rate of 2.3%, as well as a year-over-year rate of 79.6%. However, the central bank has kept its key interest rate—the one-week repo auction rate—at 14% since mid-December 2021. This suppression of the key policy rate reflects President Recep Tayyip Erdogan’s unorthodox view that high interest rates cause high inflation.

According to T. Rowe Price sovereign analyst Peter Botoucharov, the current state of affairs regarding the macro environment and monetary policy in Turkey reminds him of a period from the late 1990s into the early 2000s, when annualized inflation was also around 80%, local government bonds were yielding 70% to 75%, and household and corporate demand for U.S. dollars was as high as it is at present. Botoucharov notes that the situation improved after Erdogan and the Justice and Development Party took power in 2001 and introduced more conventional and more effective policies, including tight fiscal constraints and orthodox monetary policy (i.e., raising interest rates to tame inflation). The results of these policies included a decade of falling inflation, lower costs of funding, and a significant decrease in Turkey’s debt-to-GDP ratio.

Botoucharov believes that Turkey’s current mix of unorthodox monetary and fiscal policies is unsustainable over the long term and that Turkey needs a clear policy change to restore a more orthodox macro framework. However, he also believes this may not happen until after the June 2023 presidential and general elections.

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