Weekly markets recap 29.3.2021

U.S.

The major indexes were mixed for the week, as investors seemed to continue weighing optimism about reopening against inflation and interest rate concerns. Small-cap stocks lagged for the second consecutive week, signaling a potential pause or reversal in their recent market leadership. Similarly, communication services stocks fared worst within the S&P 500 Index, dragged down by sharp declines in shares of several traditional media companies following a stretch of strong performance. The closure of the Suez Canal because of a disabled cargo ship raised worries about already stressed global supply lines but boosted oil prices and energy stocks. Consumer staples, utilities, materials, and real estate shares were also strong.

Inflation data—perhaps at the top of the list of recent investor concerns—remained muted. The core (excluding food and energy) personal consumption expenditures index increased by 1.4% year over year in February, down from 1.5% in January and still well below the Federal Reserve’s 2% target. On Wednesday, both Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen testified before Congress that they saw little danger of an overheating economy.

EU

Shares in Europe rose on hopes of an economic recovery, reversing earlier losses stemming from concerns about additional restrictions to curb the spread of the coronavirus and the European Commission’s (EC) threat to halt vaccine exports. In local currency terms, the pan-European STOXX Europe 600 Index added 0.85%. Major stock indexes were mixed: France’s CAC 40 ended the week down modestly, while Germany’s Xetra DAX Index, Italy’s FTSE MIB, and the UK’s FTSE 100 Index posted gains.

Core and peripheral eurozone government bond yields fell overall. Concerns over Europe’s slow vaccine rollout amid the onset of a fresh wave of coronavirus infections drove demand for high-quality government bonds. Data showing a EUR 7.1 billion increase in the European Central Bank’s weekly bond purchases also weighed on yields. Gilt yields declined on fears that the EC might block vaccine exports to the UK, potentially slowing the country’s inoculation campaign. Weaker-than-expected inflation data, which pushed out expectations for the Bank of England to tighten its monetary policy, also pulled yields lower. 

Japan

Japanese stock markets posted sizable losses despite managing to recover some lost ground later in the week. The Nikkei 225 Stock Average declined 2.1% while the broader TOPIX gave up 1.4%. The yen weakened, closing at just below JPY 110 versus the U.S. dollar. The yield of the 10-year Japanese government bond finished the week lower, at 0.08%.

On Friday, Japan’s Diet approved a record JPY 106.61 trillion (USD 976 billion) budget for the 2021 fiscal year to help mitigate the fallout from the coronavirus pandemic as well as rising social security and defense costs. Once again forgoing fiscal consolidation, the House of Councillors passed the budget for the year starting on April 1, following its approval by the House of Representatives in early March.