Weekly recap
Weekly recap of world’s major stock markets China, USA, Japan and Europe
U.S.
U.S. stocks increase in broad advance.
The S&P 500 Index broke above 4,500 for the first time since September after two weeks of robust advances. An evenly weighted S&P 500 Index outperformed its market-weighted equivalent by a full percentage point this week. The Russell 1000 Value Index outpaced the growth index and returned to positive territory for the year. Small-cap indices also performed well.
As third-quarter earnings reporting season ended, T. Rowe Price traders remarked that macroeconomic variables took center stage, but certain notable retailer results provided an insight into consumer health. Target shares rose nearly 18% on Wednesday after smashing average earnings estimates and providing higher fourth-quarter guidance. Competition Walmart shares rose to a record high on the announcement. The stock plunged nearly 8% on Thursday after the company downgraded guidance on customer concern and declining prices for several goods.
Negative inflation surprises
Retailer revenues may hurt interest rates, but the week’s carefully watched inflation statistics may help. The Labor Department said on Tuesday that its headline consumer price index stayed steady in October due to a strong reduction in energy prices. Without food and energy, core prices grew 0.2%, bringing the year-over-year increase to 4.0%, the smallest in two years. The Wednesday producer price inflation report also surprised lower.
The American Farm Bureau released its annual Thanksgiving dinner poll on Wednesday, showing that a typical dinner will cost 4.5% less in 2023 due to declining costs for seven out of 11 food products, including turkey. However, the lunch cost USD 61.17, up from USD 53.31 in 2021.
The Commerce Department’s retail sales report on Wednesday may have encouraged investors. Unadjusted retail sales declined 0.1% in October, less than predicted due to petrol and vehicle sales drops. Consumer spending at bars, restaurants, and online increased while home-related spending on furniture and building materials declined.
Two-month low long-term yields
On Friday, the benchmark 10-year note hit an intraday low of 4.40%, its lowest level since mid-September, due to softening inflation signs. Bond prices and yields move oppositely. Our traders saw new issues accelerate into recent market strength and ahead of the short holiday week in the tax-exempt municipal primary market.
U.S. investment-grade corporate bonds performed well on Friday due to dropping Treasury yields. After the promising inflation statistics, high yield bonds followed stocks higher, and the leveraged loan market remained firm as loan investors concentrated on earnings and corporate headlines.
Europe
As financial markets bet on central banks dropping interest rates soon, the pan-European STOXX Europe 600 Index rose 2.82% in local currency. Major stock indexes also surged. Germany’s DAX rose 4.49%, Italy’s FTSE MIB rose 3.49%, and France’s CAC 40 rose 2.68%. The UK FTSE 100 rose 1.95%.
As inflation moderated, European government bond yields fell. On the expectation that central banks will decrease rates next year, the 10-year German government bond yield fell. Swiss, French, and Italian sovereign bond yields fell. Meanwhile, the 10-year UK government bond yield fell to 4.1%.
ECB leaders expect rates to remain high.
At a Financial Times event, European Central Bank (ECB) President Christine Lagarde said policymakers expected inflation to rise next year when base effects are removed from the yearly comparison. Lagarde suggested that another interest rate hike may not be needed if inflation rises again: “We believe that, if kept long enough—and this is not trivial—will take us to the 2% medium-term target.” She said there will likely be no change in the “next couple of quarters.”
Also, Vice President Luis de Guindos resisted market expectations for rate cuts. He maintained that monetary policy would remain restrictive to bring inflation back to goal.
The eurozone’s October annual inflation rate dropped to 2.9%, the lowest since July 2021.
UK inflation lowers; wage growth nears record
UK annual consumer price inflation fell more than predicted to 4.6% in October from 6.7% in September, prompting financial markets to bet more on interest rate reduction next year. Services and core inflation, which excludes food and energy, fell.
Bank of England Chief Economist Huw Pill said an expected inflation decline would still leave it “much too high” relative to the 2% objective before the statistics were announced.
The UK labor market was tight. Wages, including incentives, climbed 7.7% in the three months through September, up from 7.9%. The Office for National Statistics estimated 4.2% unemployment in the three months through October.
Japan
This week, Japan’s stock markets increased 3.1% with the Nikkei 225 Index and 2.3% with the TOPIX Index. Positive earnings surprises so far this earnings season underpinned gains, while dismal third-quarter GDP data did not dampen sentiment. Recent U.S. inflation statistics undershot estimates, suggesting an economic soft landing and that interest rates may have peaked, boosting risk appetite.
After U.S. bond yields fell, the 10-year Japanese government bond (JGB) yield fell to 0.72% from 0.85% the week before. To lessen yield volatility, the Bank of Japan (BoJ) reduced its regular JGB buying offer amounts.
Expectations of a stop to U.S. monetary policy tightening supported the yen, which concluded the week higher at JPY 149 vs the USD. The Japanese yen remained near a 33-year low as investors focused on interest rate differentials. Japan’s government has frequently declared it will take all measures to address foreign currency market volatility. Despite growing concerns about the weak yen’s economic impact, BoJ Governor Kazuo Ueda said this week that it boosts exports and worldwide corporations’ profits but raised import prices.
Japan’s third-quarter economy declines more than projected.
The Japanese economy contracted by 0.5% in the third quarter, worse than projected. Inflation and yen weakness weighed on private spending, while slow global demand hurt exports. Private inventories were the biggest drag. The drop after two quarters of expansion implies Japan’s economic recovery is shaky.
The Japanese corporate goods price index, which measures wholesale inflation, climbed 0.8% year over year in October, down from 2.2% in September. Global commodity prices fell, causing the downturn.
China
Chinese shares were mixed after official indications showed economic weakness. The blue chip CSI 300 Index fell 0.51% while the Shanghai Composite Index increased 0.51%. The Hong Kong Hang Seng Index rose 1.46%, according to FactSet.
October official figures showed China’s economy was mixed. Industrial production and retail sales outperformed last month, but fixed asset investment growth missed expectations due to infrastructure and real estate investment declines. Unemployment held constant since September. New bank loans grew above-consensus RMB 738.4 billion in October but fell from September’s RMB 2.31 trillion due to a seasonal decrease in business lending.
The People’s Bank of China (PBOC) infused RMB 1.45 trillion into the banking sector via its medium-term lending facility, compared to RMB 850 billion in maturing loans, its largest net injection since December 2016. As expected, the medium-term loan facility rate remained constant. As weak consumer confidence and property market issues slow post-pandemic growth, the central bank is injecting liquidity to battle economic headwinds. As the Chinese government boosts the economy, many economists expect the PBOC to ease policy during 2023, possibly cutting its reserve ratio requirement.
Property data show persistent decline
The housing market fell further in October, according to official data. According to the National Bureau of Statistics, property development investment declined 9.3% in the first 10 months of the year, compared to 9.1% in January to September. Property sales down 7.8% from January to October compared to 2022. New home prices in 70 of China’s major cities fell 0.38% from September, the steepest drop since February 2015.
Must read book about investing – check here
for Details Check