Market Review

Global Markets Weekly Update

March 22 2024

Policymakers signal rate cuts are still on the horizon

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.

U.S.

Stocks rise on dovish signals from Federal Reserve

Stocks moved higher for the week, pushing the S&P 500 Index and the Nasdaq Composite to new records, as investors welcomed news that Federal Reserve policymakers were still anticipating three interest rate cuts later in the year. Communication services led the gains along with technology shares. A late rise helped artificial intelligence chipmaker NVIDIA reach a record high on Friday and lift the company’s market capitalization near USD 2.4 trillion. Reports that Apple might partner with Google parent Alphabet in offering generative artificial intelligence tools also boosted sentiment. Health care and real estate shares lagged. Trading the following week was scheduled to end on Thursday in observance of the Good Friday holiday.

The week’s main driver of sentiment appeared to be the Fed’s policy meeting concluding on Wednesday. As was widely anticipated, policymakers left the federal funds rate unchanged, but our traders noted that investors seemed to take heart from the quarterly release of the Fed’s Summary of Economic Projections, which summarizes the outlook of individual committee members. The so-called dot plot showed that the median expectation for three rate cuts in 2024 remain unchanged, while the median expectations for interest rates in 2025 and 2026 went up by less than 25 basis points (0.25 percentage points), or by less than one cut.

Investors also appeared encouraged by Fed Chair Jerome Powell’s post-meeting press conference, where he indicated that he was not overly concerned about the uptick in inflation data in January and February, chalking it up to seasonal noise. Powell also pushed back against worries over potential signs of cracks in the labor market, such as the unexpected increase in the unemployment rate in February.

Home sales jump unexpectedly in February

The week’s economic data arguably supported hopes that the economy was continuing to expand without reigniting inflation pressures. Most notable may have been February existing home sales, reported Thursday, which surprised most observers by jumping 9.5%. A gauge of current manufacturing in the Mid-Atlantic region fell back a bit from February’s reading but surprised investors by indicating a second consecutive month of expansion. Encouragingly, prices paid by businesses in the region fell back to their lowest level since May 2020.

The news from the Federal Reserve helped drive a decline in longer-term Treasury yields over the week. (Bond prices and yields move in opposite directions.) According to our traders, a softer tone prevailed in the tax-exempt municipal bond market as weakness among high-grade new issues appeared to carry over to the secondary market. Primary issuance ticked upward on Tuesday before becoming nonexistent after the Fed’s meeting. Our traders noted that investment-grade municipal deals generally struggled while high yield municipal deals performed well, partly as a result of the lower issuance volume within the high yield space and healthy demand for high yield municipal bonds from institutional buyers.

Demand remains healthy for corporate paper

Issuance in the investment-grade market was largely oversubscribed during the week, and high yield issues were also met with solid demand. Meanwhile, there was strong demand in the secondary loan market from managers of collateralized loan obligations.

U.S. Stocks
Index

Friday’s Close

Week’s Change

% Change YTD

DJIA

39,475.90

761.13

4.74%

S&P 500

5,234.18

117.09

9.74%

Nasdaq Composite

16,428.82

455.64

9.44%

S&P MidCap 400

2,991.26

67.50

7.54%

Russell 2000

2,072.00

32.69

2.22%

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.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended near a record high, climbing 1.03%. Dovish signals from central banks boosted risk-on sentiment. Germany’s DAX gained 1.58%, while Italy’s FTSE MIB advanced 1.30%. France’s CAC 40 Index, however, fell 0.17%. The UK’s FTSE 100 surged 2.70%.

European government bond yields declined on a weak purchasing managers’ survey for Germany and a reduction in Swiss interest rates. In the UK, bond yields fell after the Bank of England (BoE) struck a dovish note at its policy meeting.

BoE keeps rates on hold with dovish tilt

The BoE kept its key interest rate unchanged at 5.25% for a fifth consecutive time, although the 8–1 vote in favor appeared to send a more dovish signal. Two previously hawkish policymakers dropped their calls for a hike in borrowing costs; another backed an immediate cut. Governor Andrew Bailey said: “We are not yet at the point where we can cut interest rates, but things are moving in the right direction.” Later, in newspaper interviews, Bailey signaled greater optimism about the economy and told the Financial Times that rate cuts could be “in play” at future meetings.

UK inflation slows; PMI expands for fifth month running

The BoE’s monetary policy announcement came a day after data showed that annual consumer price growth decelerated to 3.4% in February from 4.0% in January. This latest reading was the lowest inflation rate in more than two years. Underlying price pressures also moderated but remained strong, with services inflation easing to 6.1%. Meanwhile, the early version of S&P Global’s purchasing managers’ survey for March appeared to provide more evidence that the economy may be emerging from recession. For a fifth consecutive month, the composite purchasing managers’ index (PMI), which covers the services and manufacturing parts of the economy, remained at levels indicating an expansion in output.

SNB unexpectedly cuts rates; Norway’s central bank stays put

The Swiss National Bank (SNB) unexpectedly reduced borrowing costs by a quarter of a percentage point to 1.5%—the first cut in nine years. The SNB said that it aimed to address lower inflationary pressure and an appreciation of the Swiss franc. Meanwhile, Norway’s central bank kept its policy rate unchanged at 4.5%.

Eurozone business activity picks up

PMI surveys showed that the output of goods and services in the eurozone came close to stabilizing in March, with a first estimate recording only a marginal decline, S&P Global said. The eurozone composite PMI rose to a nine-month high of 49.9 from 49.2 in February. (PMI readings above 50 indicate an expansion in activity.)

Japan

Japanese equities gained over the week primarily on yen weakness resulting from the Bank of Japan’s unexpectedly hawkish tilt (it raised interest rates earlier than had been priced in by most market participants and for the first time since 2007). The Nikkei 225 Index rose 5.6%, and the broader TOPIX Index was up 5.3%, with both indexes rallying to record-high levels. Sentiment was also supported by expectations that the U.S. Federal Reserve will cut interest rates in 2024, given the state of inflationary conditions and the economy’s growth prospects.

Central bank ends negative interest rate policy

Japanese government bond yields moved lower after the Bank of Japan (BoJ) made a much-anticipated policy shift and exited its negative interest rate policy. The central bank announced that it will set a policy rate target of 0 to 0.1%, up from -0.1%, following reports from the previous week of major companies agreeing to robust pay increases in annual wage talks. The BoJ also ended its yield curve control program. However, Governor Kazuo Ueda affirmed that financial conditions would remain accommodative as inflation expectations were still below the 2% target.

Consumer prices pick up

On the Japanese economic data front, consumer price inflation, as measured by the consumer price index (CPI), rose to a higher-than-anticipated 2.8% annualized over the month of February. This was a sharp pickup from January's 2.0% and well ahead of the BoJ's inflation target.

Services segment continues to drive private sector growth

Meanwhile, the latest PMI data showed that activity within Japan’s private sector expanded at the fastest rate in seven months in March. Much of this is attributable to the strength of the services segment.

China

Chinese equities retreated as concerns about the property sector slump offset optimism about better-than-expected economic data. The Shanghai Composite Index declined 0.22%, while the blue chip CSI 300 gave up 0.70%. In Hong Kong, the benchmark Hang Seng Index lost 1.32%, according to FactSet.

Property investment in China fell by 9% in the January–February period from a year earlier, slowing from a 24% drop in December, according to official data. Property sales by floor area sank 20.5% in the first two months of the year, after slumping 23% in December. The slower pace of declines in property investment and sales came after Beijing rolled out numerous pro-growth measures to arrest the country’ yearslong real estate slump. However, most investors remain cautious about China’s property sector as developers continue to grapple with high debt levels and weak homebuyer demand.

Other data showed that some parts of China’s economy were picking up. Industrial production rose an above-forecast 7% in January and February from a year earlier, up from December’s 6.8%. Fixed-asset investment grew 4.2% in the first two months of the year from the prior-year period, rising from 3% in December amid higher infrastructure growth. Retail sales rose more than expected over the two-month period as consumption surged during the weeklong Lunar New Year holiday but eased from December’s increase. The urban unemployment rate was 5.3%, while the youth jobless rate edged up to 15.3%.

In other news, Chinese banks left their one- and five-year loan prime rates unchanged at 3.45% and 3.95%, respectively, as expected, after the People’s Bank of China kept its medium-term lending rate on hold the prior week. Many analysts anticipate that the central bank will continue to loosen policy and further reduce its reserve requirement ratio after a surprise cut in January to boost demand.

Other Key Markets

Brazil’s central bank cuts rates again

Brazil’s central bank reduced its benchmark interest rate by 50 basis points to 10.75%, in line with market expectations. (A basis point is 0.01 percentage point.) The monetary policy committee (Copom) also adjusted its guidance, calling for a cut of the same magnitude at its May meeting, assuming macroeconomic trends continue. This shift from the more open-ended “meetings” used in previous communications appeared to suggest that the pace at which the central bank eases monetary policy could slow as early as June. Copom’s statement cited “heightened uncertainty” around the domestic inflation outlook as well as the debate over monetary policy decisions taking place in key developed economies as potential reasons for caution.

Mexico lowers rates for first time this cycle

The Bank of Mexico trimmed its key interest rate by 25 basis points to 11%—the first reduction since it started tightening monetary policy in 2021. The governing board’s statement indicated that future monetary policy decisions would hinge on whether incoming data suggest that inflation is on track to reach its 3% inflation target. On the front, the central bank slightly adjusted its headline inflation estimate, projecting that the annual change in consumer prices would end 2024 at 3.6% compared with its previous estimate of 3.5%. Policymakers also acknowledged that upside risks to inflation remain.

 

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