Global Markets Weekly Update

Global Markets Weekly Update

Review the performance of global stock and bond markets over the past week, along with relevant insights from T. Rowe Price economists and investment professionals.



S&P 500 and Nasdaq reach new highs

Stocks recorded good gains for the week, helping bring the Standard & Poor’s 500 Index and Nasdaq Composite Index to record highs. On Friday, the S&P 500 eked out its seventh consecutive daily gain since selling off following revelations about the FBI's investigation of potential Russian meddling in the U.S. presidential election. Growth-oriented technology and consumer discretionary shares performed particularly well. Oil prices fell over 5% and energy stocks took a sharp turn lower on Thursday, following OPEC’s announcement that it was extending production cuts nine months but not deepening them, as some had hoped, or prolonging them even further.

No news is good news

T. Rowe Price traders attributed much of the week’s gains to the phenomenon of “no news is good news,” at least in terms of market-moving events. The beginning of the week saw few earnings reports, little economic data, and a relative lack of political controversy. They also noted that the market continued to exhibit the signs of ample “dry powder” being deployed to buy on the dips. Interested private-equity buyers, elevated cash balances in mutual funds, and corporations ready to buy back their own stock all supported gains.

Neither the stock nor the bond market reacted strongly to Wednesday’s release of the minutes from the Federal Reserve’s May meeting, which seemed to change few minds about the likely path of further interest rate hikes. T. Rowe Price Chief U.S. Economist Alan Levenson notes, however, that Fed officials were particularly focused on whether the first-quarter slowdown in growth would be reversed in the second quarter. The Fed will only have about half of the data it needs to make that judgment by the time of its June meeting, he observes, raising the possibility that policymakers may delay their next hike until September.

Long-term rates steady, but Fed planning to loosen downward pressure on yields

Fed officials also discussed their intention to gradually reduce reinvestment of payments on the central bank's holdings of Treasury bonds and mortgage-backed securities, which may put upward pressure on longer-term interest rates. With such a change still months away, however, longer-term Treasury yields were largely range-bound for the week on light volumes. News on Friday that the U.S. economy had expanded a bit more than originally anticipated in the first quarter failed to move yields as investors seemed to ignore the backward-looking data. Municipal bonds advanced, supported by strong demand that outpaced new issuance.

Robust demand mitigated the impact of heavy new issuance during the first half of the week and contributed to supportive technical conditions in the investment-grade corporate bond market. However, demand from investors in Asia was conspicuously light throughout the week. Traders noted increased selling as many portfolios made room for new deals, while secondary market inventories remain elevated heading into the holiday weekend.

High yield market participants mainly focused on the primary calendar over the past week. The overall tone was firm as investors responded favorably to the new deals and deployed cash, but the secondary market saw light volumes. Energy-related bonds experienced some weakness after OPEC announced smaller-than-expected production cuts.

U.S. Stocks1



Friday’s Close

Week’s Change

% Change YTD





S&P 500




Nasdaq Composite




S&P MidCap 400




Russell 2000




This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell® is a trademark of Russell Investment Group.


European stocks ended the week flat to lower, weighed down by energy, automobile, and financial shares. Oil prices dropped following OPEC's meeting, and oil shares retreated through the end of the week. Automobile stocks came under pressure from the ever-expanding emissions probes and President Trump’s comments that Germany was “very bad” because of its trade surplus with the U.S., T. Rowe Price traders observed. Germany’s export-heavy index, the DAX 30, fell following reports of Trump’s statement. The pan-European Stoxx 600 Index also ended the week lower.

In the UK, the FTSE 100 Index hit another all-time high, but its ascent was tempered Friday by losses in oil and gas shares as well as financials. Following a poll that showed UK Prime Minister Theresa May’s lead narrowing over the opposition Labour Party, the UK pound fell 0.5% versus the U.S. dollar and slipped to a two-month low against the euro on Friday. The weakening pound helped the blue chip FTSE 100, which is weighed toward multinational companies that make much of their earnings in foreign currencies.

Eurozone growth continues…

The composite purchasing managers’ index (PMI) for the eurozone remained at a six-year high, according to data firm IHS Markit, buttressing how cheaper oil and easier credit is helping to stimulate the region. Germany also reported strong manufacturing sector growth, and the PMI for France rose to its highest level in six years. The strong German and French PMIs and the all-time high in the German Business Climate Index were influential market drivers early in the week, according to T. Rowe Price traders.

…but UK growth was revised down

UK government bonds rallied this week, in part on safe-haven flows as the country was placed on its highest terror threat level following an attack in Manchester early in the week. Gilts also gained after first-quarter UK growth figures were revised down from 0.3% to 0.2%. Ten-year gilt yields had fallen to just above 1.00% by Friday's close.

ECB remains cautious

In the eurozone, core countries’ government bonds rallied late in the week as comments from several senior European Central Bank (ECB) figures suggested the central bank would show caution before reducing its monetary stimulus measures. Ten-year bund yields had declined to around 0.33% on Friday, largely flat for the week, while 10-year French government bond yields dropped to about 0.76% by Friday's close. Greek government bonds sold off this week as the country’s discussions with its creditors stalled following late-night talks on Monday. The yield on 10-year Greek government bonds had risen to just below 6% as of Friday's close. Greece faces a number of key debt repayment deadlines in July.


Japanese stocks edged higher for the week, helped by some favorable domestic economic data. Volatility was relatively low ahead of Wednesday’s release of minutes from the Federal Reserve’s monetary policy meeting in May. Investors hoped to find clear signals about possible Fed rate hikes later this year, which could affect the U.S. dollar’s strength versus the yen. As Japan is a major oil importer, investors also awaited the results of Thursday's meeting of oil-producing countries regarding the extension of production cuts.

For the week ending Friday, the Nikkei 225 Stock Average rose about 0.5% (96.08 points) and closed at 19,686.84. For the year to date, the Nikkei is up about 3.0%, the broad-based TOPIX Index is ahead approximately 3.3%, and the TOPIX Small Index has advanced about 6.9%. The yen stayed in a fairly tight range versus the dollar, ending the week around ¥111 per dollar versus about ¥117 per dollar at the end of 2016.

Favorable economic data support Japanese equities, but inflation remains subdued

On Monday, Japanese shares were buoyed by news that exports rose in April for the fifth consecutive month. On Wednesday, data from a monthly Reuters survey indicated that sentiment in the services sector reached a four-month high. While a small pullback in manufacturers’ sentiment for May was discouraging, the survey was still close to a 10-year high reached in April. Inflation data released on Friday indicated that core consumer prices (excluding food) had risen in April for a fourth consecutive month and reached a two-year high. However, the 0.3% year-over-year increase was well below the central bank’s 2% inflation target.

Former Fed Chairman Bernanke recommends Japanese central bank and government coordination

On Wednesday, former Fed Chairman Ben Bernanke spoke at a seminar hosted by the Bank of Japan (BoJ). Bernanke noted that the BoJ’s current stimulus efforts may be losing their effectiveness and that there could still be a need for more stimulus. He suggested that the BoJ may need to coordinate with the Japanese government on a new stimulative fiscal policy by allowing inflation to temporarily go above the BoJ’s 2% target. This would, in Bernanke’s opinion, help keep Japan’s government debt-to-gross domestic product ratio, which currently exceeds 200% and is one of the highest in the world, from rising.


Moody’s downgrades China’s credit rating for first time since 1989

Moody’s Investors Service cut its credit rating on China for the first time since 1989 last week, becoming the latest global organization to raise alarm about the dangers of China’s fast-growing debt load. Moody’s lowered its rating on China’s sovereign debt by a notch to A1 from Aa3, a decision that leaves its assessment of China’s creditworthiness on the same level as Japan, Saudi Arabia, and Israel. It also changed its outlook for China to stable from negative. “The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” the agency said. Though reform progress will likely transform China’s economy and financial system over time, “it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government,” Moody’s added. Hours after announcing the China downgrade, Moody’s also lowered its credit rating on Hong Kong and changed its outlook for the city to stable from negative.

Moody’s decision deals a reputational blow to China, which is trying to woo more foreign investors into its $9 trillion debt market. But for foreign investors, the downgrade is largely insignificant because it reflects a change to China’s sovereign rating, whereas most Chinese companies rely on domestic investors for their funding needs, points out Anh Lu, a Hong Kong-based T. Rowe Price portfolio manager. Foreign investors own only a paltry amount of Chinese corporate bonds, most of which are held by Chinese state-owned or quasi-state enterprises. Because the Moody’s downgrade does not affect China’s onshore bond market, there was little reaction among Chinese corporate borrowers, Lu noted.

Other Key Markets

Brazil’s banks put on ratings watch; protesters call for Temer’s ouster

S&P placed the credit ratings of 38 Brazilian financial institutions on negative watch, meaning that the ratings are at risk of being lowered. It also placed Brazil’s long-term foreign and local currency sovereign credit ratings on negative watch. The ratings agency noted that the political backdrop has worsened in the week since Brazil’s President Michel Temer was accused of endorsing bribe paying. The calls for his impeachment or resignation raise the likelihood that Brazil’s economic recovery will be delayed, which will increase “the risk for the credit fundamentals of the financial institutions operating in Brazil,” S&P said. T. Rowe Price financials sector analyst Marta Yago notes that most of Brazilian banks’ funding is sourced locally and is therefore unlikely to be affected by a rating downgrade. Over the week, tens of thousands of unionists and activists have marched on congress to demand Temer’s removal and the cancellation of a fiscal reform program proposed by his government. Troops were sent in after protesters began attacking ministries, but Temer later called them off.

T. Rowe Price sovereign credit analyst Michael Oh believes it is unlikely that Temer will survive these allegations and that he will probably negotiate his exit. Oh expects Temer’s successor will be a reformer, as the government is cognizant that it needs to pass reforms to help its chances in the 2018 presidential elections. The key question for the remainder of the year is whether Brazil’s congress will be able to enact pension reform, which could be the necessary ingredient for ensuring Brazil’s economic recovery.

In contrarian move, institutional money flows to Brazil

Investors poured more than $750 million into Brazilian stock funds in the week to May 24, according to EPFR Global, a provider of fund flow and asset allocation data. This contrarian move came after Brazil’s Bovespa dropped 9% last Thursday following the accusations against Temer. The move was driven by institutional investors in exchange-traded funds.

Moody’s upgrades outlook on credit rating of Abu Dhabi

Moody’s upgraded its outlook on Abu Dhabi’s credit rating to stable from negative, pointing to the government’s “effective and broad policy response to the lower oil price environment” and the economy’s growth prospects. Abu Dhabi has cut government spending by 23% over the last two years and has moved to reduce subsidies and raise prices of fuel, electricity, and water. These moves, according to Moody’s, have been made “more rapidly and effectively than in other Gulf Cooperation Council countries.”

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