Weekly recap of world’s major stock markets; China, USA, Japan and Europe.
U.S.
Large-cap at record highs
Large-cap indexes like Dow, S&P, and Nasdaq reached record highs, crossing the 40,000 threshold for the first time, with growth stocks outperforming due to dissipating inflation and interest rate concerns.
consumer price index (CPI) below expectations
The Labor Department’s April consumer price index (CPI) came in below expectations, with headline prices rising 0.3% and core prices rising 0.3%. Inflation remained concentrated in services, particularly transportation services costs, which rose 0.9% over the month and 11.2% over the past year. Retail sales were flat in April, with consumers pulling back on discretionary spending, with non-store sales falling 1.2% and restaurants and bars continuing to moderate.
Long-term U.S. Treasury yields fell
Long-term U.S. Treasury yields fell due to inflation and growth news, reaching their lowest level in over a month. The tax-exempt municipal bond market experienced a heavy week of new issuance, with strong demand. Spreads in the investment-grade bond market initially widened before tightening, with high yield bonds benefiting from rate moves. The leveraged loan market remained mostly unchanged, with most primary deals being refinancing or repricing-based transactions.
Europe
The pan-European STOXX Europe 600 Index rose 0.42% but fell from a record high, while major stock indexes were mixed, with Germany’s DAX falling, France’s CAC 40 Index declining, Italy’s FTSE MIB advanced, and the UK’s FTSE 100 Index finishing modestly lower.
UK pay growth remains strong
UK pay growth remains strong at 6%, but a looser labor market could lead to a June rate cut. T. Rowe Price European Economist Tomasz Wieladek suggests a potential reduction in interest rates due to the transition to a looser labor market. However, policymakers need to consider additional data before making a decision.
ECB policymakers suggest a possible rate cut
ECB policymakers suggest a possible rate cut in June, but the future is uncertain. Isabel Schnabel and Pierre Wunsch argue that the current data doesn’t justify another reduction in July, and slower Federal Reserve policy easing could delay further moves.
Eurozone industrial output increased by 0.6% in March, driven by a surge in Ireland’s output, despite the historically volatile data point.
Japan
Japanese equities rose 1.5% and 0.6% in the week, despite economic weakness and a range-bound yen due to U.S. interest rate cuts, despite cautious hawkishness from the Bank of Japan.
Japan’s economy contracted
Japan’s economy contracted by 2.0% in Q1 due to the negative impact of the earthquake and suspension of auto production, while investors remained optimistic due to strong public demand and private inventories.
Yen remained stable
The yen remained stable in the high-JPY 155 range against the USD, amid expectations of reduced interest rate differential between the US Federal Reserve and Japan, which could support the yen, which remains at historic lows despite Japanese intervention in foreign exchange markets.
BoJ reduced bond purchases
The BoJ reduced bond purchases, temporarily increasing the 10-year JGB yield to 0.94%, despite the anticipated modest increase in yields due to the reduction in the amount offered for regular purchase.
China
Chinese equities remained stable after the central government unveiled a rescue package to stabilize the country’s property sector. The People’s Bank of China (PBOC) lowered the minimum down payment ratio, scrapped nationwide mortgage rates, and extended RMB 300 billion in low-cost funds to select state-owned banks to lend to unsold homes.
China’s housing crisis continues, with new home prices dropping 0.6% in April, the steepest drop since November 2014, and real estate investment falling 9.8% in the January-to-April period.
China’s consumer price index rose 0.3% in April, accelerating from March’s 0.1% increase, while the producer price index fell 2.5% from a year ago.
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