Weekly markets recap 22.3.2021

U.S.

The major indexes continued to move to record highs early in the week but then lost ground as bond yields reached their highest levels in over a year. Energy stocks fell sharply as oil prices saw their biggest daily drop since the summer. The small-cap Russell 2000 Index fell the most, giving back some of its leadership for the year to date.

The equity rally stalled on Tuesday morning after longer-term Treasury yields resumed their rise—over the next two trading days, the yield on the benchmark 10-year note soared roughly 17 basis points (0.17%) and hit a new pandemic-era high of around 1.75% before retreating a bit. Policymakers affirmed that they anticipated no rate hikes until 2023, along with their confidence that any increase in inflation will prove short-lived. The committee also pledged to maintain the current pace of its asset purchases and meaningfully upgraded its projections for economic growth in 2021. Investors sentiment turned negative as weekly jobless claims rose unexpectedly to 770,000, their highest level in a month. Industrial production fell 2.3% in February versus consensus expectations for a slight increase, while an index of homebuilder sentiment fell to a seven-month low as housing starts and permits also saw declines. Retail sales excluding the volatile auto segment slumped 2.7% in February, the biggest decline since April’s 15.2% plunge.

EU

Shares in Europe ended little changed. Although central banks maintained their dovish policy stance to support an economic recovery, concerns about a resurgence in coronavirus infections in some countries limited upside. In local currency terms, the pan-European STOXX Europe 600 Index ended the week roughly flat. Major European indexes were mixed. Germany’s Xetra DAX Index gained 0.82%, while Italy’s FTSE MIB Index advanced 0.36%. However, France’s CAC 40 Index fell 0.80%, and the UK’s FTSE 100 Index declined 0.61%.

The BoE’s policymakers voted unanimously to keep the benchmark interest rate at an all-time low of 0.1% and to continue its existing bond-buying program. The central bank said that global economic developments “had been a little stronger than anticipated” last month and noted that the U.S. fiscal stimulus package should provide “significant additional support.” The Bank of France (BoF) increased its 2021 forecast for economic growth to 5.4% from 4.8% and said that activity at the end of last year held up better than estimated.

Japan

The performance of Japan’s stock markets was mixed over the week. The Bank of Japan’s (BoJ’s) announcement that it will limit its purchases of exchange-traded funds (ETFs) to those tracking the TOPIX contributed to the index’s 3.13% gain. The Nikkei 225 Stock Average underperformed, returning 0.25%. The yen strengthened slightly, closing at just below JPY 109 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week at 0.11%.

Japan’s exports fell by a faster-than-expected 4.5% year on year in February, due primarily to temporary factors. U.S.-bound shipments dropped by 14.0%, dragged down by declining auto sales that were at least partly due to bad weather. Exports to China also slowed sharply, from a 37.5% year-over-year increase in January to just 3.4% in February, reflecting Lunar New Year effects. Imports rose 11.8% in the year to February, following a series of declines over the past year. Growth was underpinned by a surge in imports from China.