Markets last week 28/08/2023

United States

In the United States, benchmark returns experienced fluctuations over the past week. Investors appeared to react to mixed signals regarding the economy and the direction of monetary policy. Notably, growth stocks outperformed value shares during this period, buoyed by another impressive earnings and revenue performance by the artificial intelligence chipmaker NVIDIA.

Early in the week, the financial sector faced a setback when S&P Global downgraded the credit ratings of five regional banks. This decision was partially attributed to commercial real estate lending market challenges.

Several retailers reported their second-quarter results, painting a somewhat cautious picture of U.S. consumers’ health. Macy’s, a department store operator, saw a significant drop in its stock value after reporting declining earnings and expressing concerns about increasing consumer caution and rising credit card delinquencies. Nordstrom, a competitor to Macy’s, surpassed earnings and revenue estimates but expressed caution due to rising late payments on its credit cards. Similarly, Dollar Tree and Dick’s Sporting Goods noted that their earnings were adversely affected by unusually high levels of theft from their stores.

The University of Michigan’s final reading of consumer sentiment for August, released on Friday, showed a slight decline from the nearly two-year high seen in July. This decline was possibly due to higher inflation expectations following recent increases in gas prices. However, the study’s chief researcher pointed out that consumers still held strong income expectations, especially among lower-income individuals. The labour market continued to show resilience, as reflected in the weekly jobless claims report, which hit a three-week low at 320,000.

On Thursday, data on durable goods orders suggested a degree of business caution, particularly in certain sectors. While durable goods orders, excluding defence and transportation, often considered a proxy for business investment, increased by 0.1% in July, this was offset by a downwardly revised 0.4% contraction in June. S&P Global’s index of manufacturing activity also fell more than anticipated in August, reversing most of July’s robust gains and moving further into contraction territory.

In contrast, the housing sector appeared more robust, with new home sales reaching their highest level in July since early 2022, despite the highest mortgage rates in years. Freddie Mac reported that the 30-year fixed-rate mortgage reached its highest level since 2001. However, existing home sales fell short of expectations.

Federal Reserve Chair Jerome Powell provided some insights into his interpretation of these mixed signals during his speech at the central bank’s annual symposium in Jackson Hole, Wyoming. Powell acknowledged that higher interest rates had slowed industrial production and wage growth, and tightening bank lending standards were cooling the economy. On a positive note, he mentioned that economic growth remained above its long-term trend, and the housing sector seemed to recover after a significant slowdown in the past year and a half. He concluded by saying that, like navigating by the stars under cloudy skies, the economic situation was somewhat uncertain.

Investors in both the equity and bond markets found themselves similarly navigating uncertain waters following Powell’s speech. Stock benchmarks and bond yields experienced significant fluctuations throughout the week. The yield on the benchmark 10-year U.S. Treasury note, after reaching its highest intraday level (4.36%) since late 2007 on Tuesday, ended the week relatively unchanged at 4.24%. Additionally, the ratio of tax-free municipal bonds to Treasury bonds increased during the week, indicating the underperformance of municipal bonds compared to Treasuries. Both the 10- and 30-year ratios reached their highest levels in months.

Issuance was light in the investment-grade corporate bond market throughout the week leading up to Powell’s speech. However, the few issues that did come to market were oversubscribed. Similarly, the high-yield and bank loan markets appeared to be in a holding pattern ahead of the Jackson Hole conference, as noted by our trade


The pan-European STOXX Europe 600 Index closed with a 0.66% gain regarding local currency. This uptick was attributed to a drop in European natural gas prices and mounting anticipation that interest rates might soon reach their peak. Key stock indices across Europe also saw positive movement. Italy’s FTSE MIB surged by 1.61%, France’s CAC 40 Index increased by 0.91%, Germany’s DAX registered a 0.37% rise, and the UK’s FTSE 100 Index rallied with a 1.05% gain.

Eurozone bond yields declined, with 10-year German sovereign yields closing at lower levels. Economic indicators indicated a weakening European economy, leading financial markets to lower their expectations regarding future interest rate hikes.

In August, preliminary findings from a survey of purchasing managers conducted by S&P Global suggested that business activity in the eurozone likely contracted for the third consecutive month. The Purchasing Managers’ Index (PMI) for manufacturing stood at 43.7, representing a slight improvement from July but still falling well below the 50-point threshold, indicating a contraction in activity. Additionally, the PMI reading for the services sector dropped below 50. The HCOB Flash Eurozone Composite PMI Output Index, which combines data from both sectors, hit a 33-month low at 47.0, down from 48.6 in July.

In its monthly report, the Bundesbank predicted that the German economy would likely show little to no growth in the third quarter, essentially stagnating. This scenario would mean two consecutive quarters of zero growth. The central bank noted a continued rebound in private consumption but also expressed concerns that weak foreign demand could result in lacklustre industrial production.

German companies appeared to adopt a more pessimistic outlook in August. The Ifo Institute’s business confidence index fell for the fourth consecutive month to 85.7, marking its lowest level since October 2022.

In the UK, business activity in August reached its weakest point since January 2021, according to S&P Global/CIPS. The Flash UK PMI Composite Output Index declined from 50.8 in July to 47.9, signalling a contraction for the first time since January. New orders also decreased for the second consecutive month.


Japanese stocks experienced a rally, bouncing back from the declines seen in the previous week. They posted four consecutive sessions of gains before relinquishing much of the advance in a disappointing Friday close. The benchmark Nikkei 225 ended the week with a 0.6% gain, while the broader TOPIX index rose by 1.3%.

The positive momentum in Japanese equities appeared resilient despite China’s somewhat subdued policy response to address its slowing growth and property market challenges. Additionally, upbeat domestic data releases contributed to the market’s buoyancy. The Flash composite PMI, combining data from the manufacturing and services sectors, increased to 52.6 in August, up from 52.2 in July. Although Japanese factory activity contracted for the third consecutive month in August, the data indicated a slowing pace of decline.

Mixed signals emerged from various inflation readings during the week, but the market generally welcomed a 3.1% rise in Japan’s core consumer prices in July.

On the global stage, Japanese markets responded positively to weaker U.S. PMI numbers in August, particularly in manufacturing, which raised questions about the Federal Reserve’s rationale for maintaining higher interest rates for an extended period. However, concerns about China’s economic slowdown resurfaced on Friday, causing Japanese stocks to tumble. Additionally, trade relations soured further after Japan decided to discharge contaminated water from the Fukushima nuclear plant into the Pacific Ocean.

Japanese government bond yields experienced a significant increase during the week, surging to as high as 0.68% at one point, marking the highest level in nearly a decade. This rise was driven by the recent adjustment in the Bank of Japan’s yield curve control strategy, favouring more flexibility and reduced direct intervention, which prompted selling of Japanese bonds. By the end of the week, yields had retreated to around 0.65%, influenced by global PMI data suggesting a slowdown in economic activity.

The Japanese yen continued its recent trend of weakness over the past months, concluding the period in the lower JPY 146 range against the U.S. dollar. The yen’s value approached levels last seen in September/October 2022, prompting the Bank of Japan’s intervention to support the currency during that period. Monitoring the yen’s depreciation remained important.


Chinese stocks declined as investor sentiment soured over the nation’s economic prospects. Both the blue-chip CSI 300 Index and the Shanghai Composite Index posted weekly losses, compounding their year-to-date declines. The CSI 300 Index reached its lowest level since November 2022, while the Shanghai Composite Index hit its lowest point since last December. Meanwhile, in Hong Kong, the Hang Seng Index, which had entered a bear market the previous Friday, saw a slight uptick for the week but remained at its lowest level since November.

Several factors have contributed to this erosion of confidence in China’s economy, including disappointing economic data, indications of deflation, a record-high youth unemployment rate, and ongoing liquidity issues in the debt-heavy property sector. Signs of deteriorating growth and a perception that the Chinese government has limited effective options to counter the economic slowdown have raised concerns about accelerated capital outflows. According to Bloomberg, overseas funds pulled out the equivalent of USD 10.7 billion from the mainland market over the 13 trading days leading up to Wednesday, marking the longest such stretch since data tracking began in 2016.

State media reported on Friday that China had proposed allowing local governments to remove a rule disqualifying individuals, even those who have fully repaid their mortgages, from being considered first-time homebuyers in major cities. This move represents Beijing’s latest attempt to support the struggling property sector, which faces pressure from declining home prices and increasing developers defaulting on their debt.

The recent barrage of negative news stemming from China’s property and trust sectors threatens to create a negative feedback loop regarding the overall economy, potentially leading to further weakness ahead.

However, the analysts believe that the risk of a systemic crisis originating from China’s property sector is currently low. Additionally, the riskier “shadow” banking system, which includes trusts, is smaller than in previous years due to heightened regulation. Consequently, the analysts posit that the primary risks are on China’s financial system’s fringes and could be addressed through regulatory measures. Nonetheless, they closely monitor developments in the property sector and potential spillover effects on other sectors.

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