markets & economy  |  October 15, 2021

Global Markets Weekly Update


Economic data help stocks build on gains

Stocks built on the previous week’s gains, helped by some strong economic signals and positive earnings surprises. The S&P MidCap 400 Index outperformed and briefly pulled within roughly 0.1% of its all-time intraday high on Friday. The small real estate sector fared best within the S&P 500 Index as longer-term bond yields fell, and consumer discretionary shares got a boost from Tesla. Communication services shares lagged, weighed down by declines in traditional media providers.

Stocks fell at the start of the week, with T. Rowe Price traders observing that the path of least resistance appeared to remain to the downside given the recent focus on higher energy prices and continued pressures from supply chain disruptions. Global oil prices continued their climb to their highest level in over three years, pushed higher in part by expectations that utilities and other firms would switch to oil from natural gas due to the supply shortage in Europe. Supply chain issues continued to grab headlines in the form of warnings from retailers struggling to fill shelves ahead of the holidays, while Apple scaled back its expectations for iPhone sales due to semiconductor chip shortages.

Peaking supply pressures?

Evidence that supply pressures and inflation might be peaking seemed to be a major factor in stocks regaining momentum to end the week. On Wednesday, the Labor Department reported that core (less food and energy) consumer prices had risen 4.0% for the year ended in September—above the Federal Reserve’s long-term 2% inflation target, but in line with August and consensus expectations. Producer prices, reported Thursday, rose 0.5% for the month (8.6% for the year), down from the 0.7% rise in August and less than consensus forecasts. Investors may have been further reassured by the release of the minutes from the Fed’s September policy meeting, which revealed that officials believed current economic conditions justified keeping short-term interest rates at or near zero for the next couple of years. On the supply front, the White House announced measures intended to relieve the congestion at major ports.

Investors also seemed comforted by evidence that the drag on the economy from the delta variant of the coronavirus was easing. On Thursday, the S&P 500 Index recorded its biggest daily gain since March following news that weekly jobless claims had fallen to 293,000, a new pandemic-era low. Airline and cruise ship stocks rose after the White House announced an easing in border controls following the recent decline in coronavirus cases. Wall Street’s momentum carried into Friday after the Commerce Department reported that retail sales had defied expectations for a decline and jumped 0.7% in September—although some of the increase was due to higher prices. Indeed, even as they opened their wallets, consumers remained guarded. The University of Michigan’s preliminary gauge of consumer sentiment in October fell back toward multiyear lows, defying expectations for a slight gain.

Yields retrace decline following retail sales report

The U.S. Treasury yield curve flattened through most of the week, as investors assessed the latest inflation data and the minutes from the Fed’s September policy meeting. According to our traders, short-term yields crept higher on growing expectations that the Fed will deliver a quicker policy response to combat inflation pressures. Meanwhile, concerns over the economic outlook caused longer-term yields to retreat, although the yield on the benchmark 10-year U.S. Treasury note retraced part of its decline following Friday’s retail sales report.

The broad tax-exempt bond market generated modest gains but underperformed U.S. Treasuries by a wide margin. According to our municipal bond traders, demand was strongest for issues maturing in less than 10 years, while buying activity in longer-term bonds was muted. They added that worries about potential outflows from high yield municipal bond portfolios kept credit spreads at the wider end of the recent range, although spreads tightened slightly on Thursday across most sectors.

Our traders noted that sentiment in the investment-grade corporate bond market improved after minutes from the Fed’s September meeting suggested that the timeline to asset purchase tapering may be slightly longer than initially thought. A relatively lighter primary calendar and healthy secondary trading volumes supported the sector from a technical perspective.

High yield trading volumes were somewhat light, even though broader risk markets were stronger due to the arguably reassuring inflation data. Our traders noted that investor sentiment improved as bank earnings surpassed expectations, and positive economic data seemed to outweigh the ongoing inflation and supply chain concerns.

U.S. Stocks

Index Friday's Close Week's Change % Change YTD
DJIA 35,294.76 548.51 15.32%
S&P 500 4,471.37 80.03 19.04%
Nasdaq Composite 14,897.34 317.80 15.59%
S&P MidCap 400 2,748.28 58.05 19.15%
Russell 2000 2,265.65 32.56 14.72%

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.


Shares in Europe rallied on optimism about the continuing economic recovery and strong corporate earnings. In local currency terms, the pan-European STOXX Europe 600 Index added 2.65%. Major indexes were mostly higher: France’s CAC 40 Index tacked on 2.55%, Germany’s Xetra DAX Index gained 2.51%, and Italy’s FTSE MIB Index advanced 1.68%. The UK’s FTSE 100 Index climbed 1.95%.

Core eurozone bond yields finished lower after a week of volatile trading. Yields ticked up on fears of rising inflation, but high-quality government bonds found themselves in demand later in the week, amid concerns that the central bank might make a policy error by raising rates too aggressively. Peripheral eurozone bond yields broadly tracked core markets, as did UK gilt yields.

Eurozone industry output falls

Industrial production in the eurozone fell in August due to supply chain bottlenecks and slowing global trade, Eurostat data showed. Output from factories, mines, and utilities fell 1.6% from July, when output increased by 1.4% sequentially

UK economy returns to growth; number of payroll employees hits record

UK gross domestic product (GDP) in August grew 0.4% month over month as the hospitality industry benefited from the first full month of reopening. Revised estimates indicate that GDP contracted by 0.1% in July due to staff absences linked to the spread of the coronavirus. Although the UK economy has recovered to near the levels last seen before the downturn caused by the coronavirus pandemic, GDP is still about 5% less than it would have been if it had continued to grow at its pre-pandemic pace.

UK employers added 207,000 staff to their payrolls in September, taking the total number of payroll employees to a record 29.2 million, returning to pre-pandemic levels, data from the Office of National Statistics showed. Headline unemployment fell to 4.5% in the three months ended August 31, continuing a decline from the five-year peak of 5.2% hit in November 2020.

German institutes cut growth forecasts

Germany’s top five economic institutes slashed their forecast for economic growth in 2021 to 2.4% from a previous estimate of 3.7%, as supply chain bottlenecks curb manufacturing output. However, they said economic conditions would improve toward year-end and raised their forecast for 2022 growth significantly to 4.8% from 3.9%, as the impact of the coronavirus pandemic eases.

Meanwhile, the German Economy Ministry said GDP would expand strongly in the third quarter on growth in services but then stagnate in the final three months of the year due to supply bottlenecks. Raw material delivery problems could hurt industry for some months, it said.


Japan’s stock market returns were positive during a week that saw Japan’s powerful lower house of parliament dissolved, setting the stage for an October 31 general election. Investors gained reassurances that new Prime Minister Fumio Kishida is not planning to veer too far away from the policies of his predecessors and does not intend to raise the country’s capital gains tax, a subject that previously spooked markets.

The Nikkei 225 Index rose 3.64% while the broader TOPIX Index gained 3.16%. The yen fell to its lowest level in three years, to around JPY 114.3 against the U.S. dollar, prompting Finance Minister Shunichi Suzuki to state that currency stability is very important and that the government will continue to closely watch currency market moves and their impact on the economy. The yield on the 10-year Japanese government bond finished the week broadly unchanged at 0.08%.

New PM Kishida retreats on plans to raise capital gains tax

Market volatility sparked by investors’ concerns about a prospective capital gains tax increase under Kishida led Japan’s new prime minister to retreat on his plans. Having previously suggested that a change to the country’s capital gains tax would aid in distributing the benefits of economic growth more equally, Kishida said that he does not plan to change the tax for the time being. He does plan, however, to increase support in the tax system for companies that raise wages, in a bid to boost the share of income that goes to labor.

The new prime minister also provided some detail on the economic package worth tens of trillions of yen that he has pledged to compile after the October 31 general election. It will include support for the domestic development and production of vaccines and for building a chipmaking plant in Japan to bolster supply chains for critical components, such as semiconductors. In the near term, Kishida’s priority is to put the economy on a solid footing with bold monetary easing, flexible fiscal steps, and a growth strategy—signaling continuity with the policies of the prime ministers who preceded him, Yoshihide Suga and Shinzo Abe.

Government retains overall view of economy but sees export growth slowing

In its October economic outlook report, the government retained its overall assessment for the Japanese economy as continuing to pick up, pointing to signs of recovery in private consumption, but it said that the pace of recovery was slowing due to the severe situation caused by the coronavirus pandemic. However, the government stated that exports were “increasing at a slower pace,” instead of its previous assessment in September of exports “increasing moderately.” This was against the backdrop of supply chain constraints—leading to tepid shipments of cars, electronics, and other information technology-related goods—and signs of economic slowdown in China.

Separately, at an event hosted by Reuters in Tokyo, Bank of Japan Deputy Governor Masayoshi Amamiya said that the central bank must be vigilant in addressing the impact that supply chain disruptions in Asia could have on the country’s economy.


Chinese markets ended nearly unchanged ahead of next week’s quarterly GDP report. The large-cap CSI 300 Index edged up 0.3% and the Shanghai Composite Index dipped 0.6%. China’s economic expansion slowed in the third quarter, Premier Li Keqiang said ahead of Monday’s release, but did not elaborate.

Deepening energy crisis

Investors have been spooked by a deepening energy crisis as cold weather swept into much of the country and power plants scrambled to stock up on coal, sending prices of the fuel to record highs. Oil and natural gas prices, which have also soared to multiyear highs, have also sent jitters across China, a net energy importer. Several Chinese energy companies are in advanced talks with U.S. exporters to secure long-term liquefied natural gas supplies, Reuters reported, underscoring the urgency of the crisis as natural gas prices in Asia have jumped more than fivefold this year and raised fears of power shortages this winter.

China’s policymakers are being forced to choose between supporting the economy and further stoking producer prices, as the official producer price index jumped 10.7% in September from a year earlier, marking the biggest rise since the government began compiling the data in 1996. Exports in September were surprisingly robust. However, bank loans rose less than forecast, and broader credit growth slowed amid Beijing’s strict controls on property and debt issued by local government financing vehicles. The muted economic data coincided with the release of weak presales data from some of China’s leading developers.

Additional stresses for property developers

Despite continued concerns about China’s property sector, a central bank official said that the spillover effect of China Evergrande Group’s debt problems on the banking system is controllable and that risk exposures are not big. However, during the week, Sinic Holdings, a mid-size developer, said it continued to hold talks with lenders over bond payments that are due. Modern Land China, another developer, is seeking creditors’ consent to postpone payment on a bond.

Meanwhile, cash-strapped property giant Evergrande owes the equivalent of USD 28 million for land in the northeastern city of Changchun it bought in June, government officials said. Evergrande, which is shouldering more than USD 300 billion in liabilities, failed to pay nearly USD 150 million worth of coupons on three bonds due Monday after missing two other bond payments in September. Investors are now awaiting several key dates when Chinese property companies are due to make payments on their debt, with at least USD 92.3 billion of bonds coming up for payment in 2022, according to Refinitiv data.

Other Key Markets


Turkish stocks, as measured by the BIST-100 Index, returned about 0.8%. Turkish assets were pressured in the latter part of the week by news that President Recep Tayyip Erdogan, by way of a presidential decree, replaced three members of the central bank’s Monetary Policy Committee. Erdogan gave various reasons for his decision, but one of the policymakers was dismissed specifically because he voted against the central bank’s interest rate cut in September. This event, which took place seven months after Erdogan replaced the previous central bank governor Naci Ağbal with Sahap Kavcioglu in March, is further evidence that the central bank lacks institutional independence under Turkey’s presidential system.

T. Rowe Price sovereign analyst Peter Botoucharov believes that Erdogan continues to support Kavcioglu but is unwilling to tolerate opposition from monetary policymakers. Botoucharov also believes that Erdogan expects the central bank to reduce interest rates more aggressively in order to support the government’s prerogative for economic growth. While lower rates could lead to stronger growth, Botoucharov notes that easier monetary conditions are likely to contribute to higher inflation.


Chilean stocks, as measured by the S&P IPSA Index, slumped about 4.3%. On Wednesday, the central bank raised its key interest rate from 1.50% to 2.75%. This 125-basis-point rate increase was larger than expected, and the decision was unanimous among policymakers.

According to T. Rowe Price emerging markets sovereign analyst Aaron Gifford, the post-meeting statement from policymakers was hawkish, like the previous one at the beginning of September, with a focus on upward surprises to inflation, strong growth—including for struggling sectors that have now recovered to pre-pandemic levels—and financial risks linked to political and legislative issues. These issues include the fourth pension withdrawal legislation since the onset of the pandemic; the final Senate vote that will likely take place during the last week of October; the upcoming legislative and presidential elections (the first round is November 21, the runoff is December 19); and a rewrite of the constitution, which is now being drafted.


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