United States
After experiencing its worst weekly decline in two months, stocks rebounded and closed higher. Energy and materials shares performed well, while communication services received a boost from Meta Platforms, the parent company of Facebook. However, utility stocks underperformed. T. Rowe Price traders noted that the market experienced low trading volumes for much of the week due to a lack of significant drivers. Additionally, the market sentiment was strengthened by the S&P 500 Index remaining above its 200-day moving average, a commonly used metric by technical analysts and traders.
The market’s low volumes and subdued reaction could be attributed to the mixed nature of the important economic reports released during the week. The Commerce Department revealed that orders for non-defense capital goods, often used to gauge business investment, increased by 0.8% in January, offsetting the 0.7% rise in producer prices. However, durable goods orders saw their sharpest drop since the pandemic-related shutdowns in April 2020. Meanwhile, wholesale inventories fell for the first time since July 2020, while retail inventories (excluding autos) slightly increased.
Despite the manufacturing sector continuing to weaken, there were indications of it contracting slower. The Institute for Supply Management’s manufacturing Purchasing Managers’ Index (PMI) increased in February for the first time since May. However, it remained in contraction territory at 47.7 (below 50 indicates slowing activity). While the Institute’s services PMI fell slightly, it still indicated moderate expansion (55.1) and was less than the consensus expectations.
The week’s biggest data shock may have been an 8.1% jump in pending home sales in January, marking the second month of gains.
Europe
European markets overcame concerns about interest rates and instead focused on positive signs of an improving economic outlook, leading to a rise in shares. In local currency terms, the pan-European STOXX Europe 600 Index increased by 1.43%. Major stock indexes in Germany, France, Italy, and the UK also saw gains, with the DAX Index adding 2.42%, the CAC 40 Index gaining 2.24%, the FTSE MIB Index climbing 3.11%, and the FTSE 100 tacking on 0.87%.
However, during the week, European government bond yields rose due to concerns about aggressive monetary policy tightening by the European Central Bank (ECB) following elevated inflation data. The yield on Germany’s 10-year sovereign bonds rose above 2.7%, while Italian government bonds of the same maturity reached new highs for 2023.
Official data showed that inflation in the eurozone eased slightly to 8.5% in February, down from 8.6% in January, primarily due to decreasing energy costs. However, core inflation, which excludes volatile food and energy prices, and provides a more accurate reflection of underlying pricing pressures, increased slightly from 5.3% to 5.6%. The eurozone’s unemployment rate remained stable at 6.7% in January, close to its record low.
According to European Central Bank President Christine Lagarde, there is likely to be another 0.5% interest rate increase at the March 16 meeting. Minutes from the February policy meeting suggest that while there is limited evidence of stabilisation in underlying inflation measures, further increases in policy rates are necessary for the Governing Council to reach a restrictive territory.
During a speech, Bank of England Governor Andrew Bailey warned that interest rates might need to be raised beyond 4%, but he emphasised that this was not inevitable. Bailey stated, “At this stage, I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more,” and noted that any decision would depend on data. He also indicated that although an increase in Bank Rate may be appropriate, no decision had been made yet.
According to BoE data, the number of loans approved for house purchases by British lenders in January fell to its lowest level since 2009, with the exception of a large drop at the beginning of the pandemic. Additionally, mortgage lender Nationwide reported that house prices decreased in February by the most in a decade, indicating a decelerating housing market.
Japan
Over the course of the week, Japan’s stock markets saw gains, with the Nikkei 225 Index rising by 1.73% and the TOPIX Index by 1.57%. Investors were pleased with Bank of Japan (BoJ) governor nominee Kazuo Ueda’s emphasis on monetary policy continuity and signs of recovery in the Chinese economy following COVID lockdowns. Japan’s relaxation of entry requirements for travellers from mainland China was also viewed positively. However, market gains were dampened by uncertainty about the eventual peak in U.S. interest rates. Despite this, the yield on the 10-year Japanese government bond (JGB) remained close to the BoJ’s 0.50% cap, though it did cross the ceiling due to upward pressure from U.S. Treasury yields, which rose on solid data that raised concerns about further Federal Reserve rate hikes. The yen remained relatively stable throughout the week, trading at around JPY 136 against the U.S. dollar.
Households are facing increasing pressures from the rising costs of necessities such as food and energy, affecting their cost of living. In response, Prime Minister Fumio Kishida has instructed the government to develop additional measures to address these price hikes and assist Japan’s fragile post-COVID economic recovery. The government’s most recent stimulus package was declared in October 2022, to alleviate the effects of inflationary pressures and a weakening yen on businesses and consumers.
China
As a result of strong economic data, the National People’s Congress (NPC) held a meeting in which prospects for a better-than-anticipated economic recovery were discussed. The Shanghai Stock Exchange Index rose by 1.87% in local currency terms, while the blue-chip CSI 300 increased by 1.71%. According to Reuters, the benchmark Hang Seng Index in Hong Kong advanced by 2.79% after four weeks of losses. The NPC meeting, which takes place every five years and is closely monitored for indications of economic policy changes and senior leadership shifts, began on March 5 and is expected to last approximately one week.
Domestic activity increased, resulting in a rise in China’s official manufacturing PMI data from January’s 50.1 to 52.6 in February, the highest reading since April 2012. Although raw materials remained in contraction, production and new orders were strong as supply and demand recovered. The nonmanufacturing PMI increased from 54.4 the previous month to 56.3, surpassing economists’ predictions. The private Caixin/S&P Global survey of manufacturing activity also returned to growth, marking its first expansion in seven months.
Market Indices
|
|
In Local Currency |
In Sterling Pound |
||
|
Index |
Last week |
YTD |
Last week |
YTD |
|
UK |
|
|
|
|
|
FTSE 100 Index |
1.10% |
7.34% |
1.10% |
7.34% |
|
US |
|
|
|
|
|
S&P 500 Index |
1.94% |
5.60% |
1.63% |
6.05% |
|
Europe |
|
|
|
|
|
Euro Stoxx 50 Index |
2.78% |
13.46% |
3.00% |
13.16% |
|
Asia |
|
|
|
|
|
Nikkei 225 Index |
1.73% |
6.24% |
1.45% |
3.26% |
|
Hang Seng Index |
0.74% |
4.26% |
0.41% |
4.12% |
|
MSCI Emerging Markets Index |
1.46% |
3.72% |
1.37% |
3.87% |
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