USA
In the U.S., stocks retreated from record highs as U.S. Treasury yields surged, driven by indications of a manufacturing revival. Major indexes, particularly large-cap ones, pulled back, with growth stocks outperforming their value counterparts. Energy stocks notably surged, fueled by rising tensions between Israel and Iran and concerns over oil supply disruptions. Additionally, Microsoft’s late-week strength provided a boost to the technology sector, cushioning the market’s overall decline.
The Institute for Supply Management’s (ISM) indexes played a pivotal role in shaping market sentiment throughout the week. While the manufacturing index signaled expansion, reaching its highest level in 16 months, the service sector activity decelerated, suggesting a slowdown in economic growth. However, the moderation in the services index also alleviated concerns about inflation, as the prices paid index fell to its lowest level since the onset of the pandemic in March 2020.
The robust March jobs report provided further reassurance to investors. Job gains exceeded expectations, with solid employment growth accompanied by modest wage increases. Encouragingly, the rise in the labor force participation rate hinted at a healthier job market, tempering concerns about wage pressures. Equity investors welcomed these positive economic indicators, but the surge in Treasury yields sparked volatility in bond markets. Municipal bond yields rose in tandem with tax-exempt bonds, while high-yield corporate bonds faced pressure amid escalating geopolitical risks.
Europe
Across the Atlantic, European markets witnessed a decline, ending a ten-week winning streak for the STOXX Europe 600 Index. Hawkish comments from U.S. Federal Reserve officials and elevated oil prices cast doubt on the possibility of rate cuts. However, economic indicators painted a mixed picture. While Eurozone inflation moderated, suggesting some respite from surging prices, other indicators hinted at economic resilience. Notably, S&P Global revised its estimate for the Eurozone’s composite purchasing managers’ index (PMI) upward, indicating expansion in private sector business activity.
The European Central Bank (ECB) remained cautious, awaiting key economic data post-April meeting before considering any policy adjustments. Meanwhile, the UK’s housing market showed signs of improvement, with net mortgage approvals reaching their highest level since June 2022. In Sweden, the central bank signaled a willingness to address currency depreciation through potential rate cuts, underscoring policymakers’ concerns about inflationary pressures.
China
In China, equities rallied on signs of economic recovery, with manufacturing activity expanding for the first time in six months. The official manufacturing PMI rose above expectations, driven by rebounding production and exports. However, new home sales continued to decline, posing challenges to the property sector and the broader economy. Despite ongoing liquidity concerns and regulatory headwinds, Chinese markets remained resilient, supported by the central bank’s commitment to maintaining ample liquidity to support economic growth targets.
Japan
Japanese stocks faced headwinds amid global uncertainty and concerns about yen weakness. The Bank of Japan (BoJ) hinted at potential rate hikes to address currency depreciation, as the yen hovered around its lowest level in about 34 years against the U.S. dollar. Despite reflationary trends in prices and wages, monetary policy remained accommodative, with the BoJ emphasising the need for sustained inflation and wage growth before considering normalisation.
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