Markets last week 03/04/2023

United States

The equity markets experienced solid gains during a relatively uneventful week for economic and financial news. Small-cap stocks outperformed large-cap stocks, and value stocks showed a slightly stronger advance than growth stocks. The rise in oil prices boosted energy stocks, representing a significant portion of the value indexes. West Texas Intermediate crude oil increased more than 9% for the week, crossing the USD 70 per barrel threshold.

In addition, the first quarter of 2023 came to an end. The technology-heavy Nasdaq Composite increased more than 16% for the quarter, while the S&P 500 Index showed an approximately 7% gain. However, the large-cap Dow Jones Industrial Average showed only a modest increase. Bank stocks, which had taken a hit since the collapse of Silicon Valley Bank and Signature Bank earlier in March, made a comeback, with the widely followed KBW Bank Index outpacing the broad market’s gains. On Thursday, the Biden administration proposed new regulations for mid-size banks with assets between USD 100 billion and USD 250 billion, imposing more stringent capital and liquidity requirements and more frequent stress tests under a wider range of market scenarios. This proposal would align the regulation of mid-size banks with the country’s largest banks.

The market received positive news on inflation, with the U.S. core personal consumption expenditure (PCE) price index for February is slightly lower than expected at 4.6%. The core PCE is the Federal Reserve’s preferred measure of inflation. Although lower than the recent high of 5.4% reached in February 2022, it is still well above the Fed’s long-term inflation target of 2%. The Commerce Department released its final estimate of fourth-quarter 2022 gross domestic product growth, slightly revised lower to 2.6%.

U.S. Treasury yields showed some increase but were less volatile than in early March when concerns over banking system turmoil triggered worries of a recession. The difference between two- and 10-year Treasury yields became more negative, but the yield curve remained less inverted than before. Tax-exempt municipal bonds showed better performance than Treasuries from a total return perspective, with limited new issuance and relatively light inventories of municipal bonds on dealer balance sheets helping to support the market.


Stock markets across Europe surged as concerns over financial instability eased. The STOXX Europe 600 Index rose 4.03% in local currency terms, while major stock indexes, including France’s CAC 40 Index, Germany’s DAX, Italy’s FTSE MIB, the Swiss Market Index, and the UK’s FTSE 100 Index, also experienced strong gains.

Meanwhile, European government bonds saw broad increases as investors considered the implications of strong core inflation data and hawkish remarks from policymakers at the European Central Bank. Although benchmark 10-year German government bond yields rose slightly, demand for perceived haven assets declined, driving up bond yields in France and Switzerland. Yields on UK 10-year government debt rose above 3.5%, ending close to that level due to heightened expectations of another interest rate hike in May.

In other economic news, annual consumer price growth in the euro area slowed to 6.9% in March from February’s 8.5%, according to preliminary estimates, as energy costs fell. The result was lower than the FactSet poll of economists’ consensus forecast of 7.1%. However, the core rate, which excludes volatile food and energy prices, increased slightly from 5.6% to 5.7% in February. Additionally, the unemployment rate held steady at 6.6% in February.


On March 28, nationwide protests against pension reforms took place in France, with the French government stating that about 740,000 people participated, whereas the unions estimated the figure at 2 million. Compared to the previous week’s nationwide mobilization, the demonstrations were smaller in scale and had fewer incidents of violence. Unions have announced an 11th day of national strikes on April 6. Although union called for “mediation” on the proposed changes, the government rejected the offer. However, Prime Minister Elisabeth Borne is expected to hold discussions with the unions in the coming days.


As per revised official data, the UK managed to avoid a recession last year, aided by government subsidies for energy bills. In Q4, gross domestic product (GDP) grew sequentially by 0.1%, as opposed to remaining stagnant, and shrank only by 0.1% in Q3, less than the initial estimate of a 0.2% contraction. However, according to mortgage lender Nationwide, the housing market continued to be weak, with house prices falling at the fastest annual rate since the great financial crisis in March. Additionally, Bank of England data showed a significant decline in net mortgage lending in February.

In a speech, BoE Governor Andrew Bailey stated that recent issues in the banking industry would not distract the central bank from its focus on inflation. Although he acknowledged significant strains in the global banking system, he added that UK lenders remained resilient and capable of supporting the economy.


Over the week, Japan’s stock markets saw gains, as the Nikkei 225 Index rose by 2.40%, and the broader TOPIX Index was up 2.46%. The improved sentiment was due to reduced concerns about global banking sector turmoil and some expectations that the U.S. Federal Reserve may ease its monetary tightening. Domestically, core consumer price inflation in the Tokyo area slowed for the second month in March but still exceeded expectations, registering at 3.2% yearly, surpassing the Bank of Japan’s 2% inflation target. This fueled speculation that incoming Governor Kazuo Ueda may change the ultra-loose monetary policy.

The yield on the 10-year Japanese government bond (JGB) increased to 0.32%, up from 0.29% at the previous week’s end, but still well below the 0.50% JGB yield cap set by the Bank of Japan. The bank announced that it would reduce the minimum amount of JGBs for all maturities to be purchased over the year’s second quarter, giving it a chance to decrease its bond buying. The yen weakened to about JPY 133.1 against the U.S. dollar, from about JPY 130.7 the previous week, as demand for safe-haven currencies eased.


Chinese equities posted gains on the back of expectations that the country’s central bank will continue its accommodative stance amid the ongoing global banking turmoil. The Shanghai Stock Exchange Index rose by 0.46%, while the blue-chip CSI 300 increased by 1.72% in local currency. Meanwhile, the Hang Seng Index in Hong Kong climbed by 2.03%.

For the seventh consecutive month, the People’s Bank of China (PBOC) left its one-year and five-year loan prime rates (LPR) at 3.65% and 4.3%, respectively. The LPRs are based on interest rates offered by 18 banks to their best customers and are published monthly by the PBOC. The move was widely anticipated after the central bank left its medium-term lending facility (MLF) unchanged the previous week and announced an unexpected 25-basis-point cut in the reserve requirement ratio for most banks, interpreted as a measure to support the economy.

China’s fiscal revenues fell by 1.2% in the first two months of 2023 from a year earlier, while expenditures increased by 7%. Revenue from state land sales, a significant source of direct funds for local governments, dropped by 29%, reflecting the persisting weakness in the housing market, despite the government’s efforts to support the sector.

Although China’s economic indicators have improved in recent months, with consumption and infrastructure investment rebounding from pandemic lockdowns, many analysts predict that policymakers will maintain an accommodative stance due to the global growth outlook being strained by turmoil in the banking industry.

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