United States
Major benchmarks mostly trended lower with light and choppy trading during a shortened trading week due to the Good Friday holiday. The closure of U.S. markets on Friday meant that investors could not react to the Labor Department’s nonfarm payrolls report for March. However, other economic releases during the week seemed to affect sentiment. The Institute for Supply Management’s (ISM) gauge of March factory activity fell to a three-year low. The services sector also expanded at a slower pace than expected, indicating potential recession concerns and growing hopes for lower interest rates.
The Labor Department’s report on Tuesday showing a larger-than-expected decline in job openings for February, coupled with an increase in people quitting their jobs, further fueled concerns about the health of the labor market. As a result, U.S. Treasury yields moved lower, supported by technical conditions such as light dealer inventories and below-average supply, which also boosted the municipal bond market.
Investment-grade corporate bonds were supported by limited new issuance, although performance varied across sectors. Energy sector bonds performed well on news of OPEC and other oil-producing nations’ production cuts, while U.S. and Yankee banks lagged behind the broader market. The high-yield bond market was focused on new issuance, with several new deals announced after a quiet March for the primary calendar, and most new issues met with solid demand. Energy names also traded higher following news of proposed OPEC+ oil supply cuts, indicating market activity and sentiment during the holiday-shortened week.
Europe
European shares experienced a boost as concerns about a potential banking crisis eased. The pan-European STOXX Europe 600 Index ended the week of April 6 with a 0.90% gain in local currency terms, although major stock indexes showed mixed results.
Statements from European Central Bank (ECB) officials, including President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane, indicated that inflationary pressures could lead to further interest rate hikes. However, other policymakers such as Bank of France Governor François Villeroy de Galhau, Bank of Lithuania Governor Gediminas Šimkus, and Bank of Greece Governor Yannis Stournaras expressed the view that rates may be nearing a peak despite potential increases.
Data from Eurostat revealed that European Union home prices declined in the fourth quarter of the previous year, marking the first drop since 2015 and reflecting a record decline of 1.5% sequentially. Higher interest rates were cited as a factor curbing demand for houses. In addition, eurozone producer prices fell for the fifth consecutive month in February, surpassing expectations, largely due to declining energy prices.
However, there were positive signs in Germany, as there was an unexpected monthly increase of 2.0% in industrial production in February, driven by strong demand for heavy vehicles and autos. Manufacturing orders also surged by 4.8%. As a result, Germany’s economics ministry noted that signs of an economic recovery were becoming evident, with a notable pickup in industrial activity and business confidence since the beginning of the year.
Japan
Japanese stocks faced a decline over the week, as both the Nikkei 225 Index and the TOPIX Index dropped by 1.9% and 2.1%, respectively, in trading until Thursday. Data releases indicating a possible slowdown in the U.S. economy raised concerns about a potential global recession. Investors were also digesting the potential impact of Japan’s recent announcement of export restrictions on certain types of semiconductor manufacturing equipment, particularly on its relations with China, its largest trading partner.
Speculation continued about a potential change in the Bank of Japan’s (BoJ) ultra-loose monetary policy under incoming Governor Kazuo Ueda, who is set to assume the post on April 9. A former BoJ official suggested during the week that the central bank could adjust its yield curve control framework without prior warning. In this context, the 10-year Japanese government bond yield rose from 0.32% at the end of the previous week to 0.46%, tracking the global rise in bond yields. The Japanese yen also strengthened against the U.S. dollar, with the exchange rate reaching around JPY 131.3 compared to around 132.8 the previous week, due to dollar weakness as sluggish U.S. data increased the likelihood of a more moderate pace of monetary policy tightening by the Federal Reserve.
The BoJ’s closely monitored Tankan survey showed a decline in business sentiment among Japan’s major manufacturers in the first quarter, marking the fifth consecutive decline. Higher materials costs due to yen weakness and elevated resource prices weighed on profits, exacerbated by anticipated weakening in overseas demand. On the other hand, big non-manufacturing enterprises benefited from rising inbound consumption.
During the week, trade ministers of the Group of Seven (G7) advanced economies, including Japan, agreed to cooperate on imposing export controls for some leading-edge technologies to address potential misuse. They also emphasised working closely with non-G7 partners to build resilient supply chain networks. In October, the U.S. had previously imposed export restrictions on chipmaking tools to China and called on other key suppliers, including Japan and the Netherlands, to follow suit. Japan recently announced plans to restrict exports of certain semiconductor manufacturing equipment, although it does not have one specific country in mind with these measures.
China
Chinese stocks experienced gains in a shortened trading week, as positive developments in services activity and the property sector boosted investor sentiment. The Shanghai Stock Exchange Index rose 1.22%, and the blue-chip CSI 300 increased by 1.13% in local currency terms. Markets in Hong Kong and China were closed on Wednesday to observe the Qingming festival, also known as Tomb Sweeping Day, which is a time when Chinese people pay respects to their ancestors by cleaning and making offerings at their tombs.
Regarding economic news, the private Caixin/S&P Global survey of services activity showed a rise to 57.8 in March, up from February’s 55.0, marking the third consecutive month of expansion since pandemic restrictions were lifted in December. However, the survey’s manufacturing gauge slowed to 50.0 in March from an eight-month high in February, reflecting subdued global demand. The weaker-than-expected Caixin/S&P manufacturing data was consistent with the official Purchasing Managers’ Index from the prior week, which also showed a decline from February’s level but remained in expansion. Index readings above 50 indicate growth compared to the previous month.
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