World Markets Trade Near Peaks, Chinese Policymakers Struggle to Adjust to Slower Growth

Barry Adams
04 Mar, 2024
New York City

Benchmark indexes lacked direction in Monday's trading after extending gains in the previous week as investors remained focused on earnings and overlooked ongoing interest rate uncertainties.  

The S&P 500 index and the Nasdaq Composite traded near record highs reached last week after markets extended a five-month rally following the enthusiasm surrounding artificial intelligence and sharp gains in semiconductor industry stocks. 

Investors bid up stocks after better-than-expected earnings contributed to the market's enthusiasm, and investors embraced the hotter-than-expected inflation report last week. 

The personal consumption expenditures price index, an alternative measure of inflation that accounts for product substitution by consumers, increased by 0.3% on the month and by 2.4% from a year ago. 

The inflation data met investors’ expectations, but the report also signaled that policymakers most likely will wait for another three months before lowering rates.

Seasonally adjusted new home sales in January rose 1.5% to 661,000, driven by lower mortgage rates in the month, the U.S. Census Bureau reported Monday.

The median sales price of new houses sold in January was $420,700, higher than $413,100 in December but lower than 432,100 a year ago. 

The housing market report confirmed that affordability issues and tight market conditions are not likely to go away anytime soon.

The U.S. economic growth was revised downward in the fourth quarter to 3.2% from the preliminary estimate of 3.3%, following the 4.9% annual pace of increase in the third quarter, the U.S. Bureau of Economic Analysis reported Wednesday. 

For the full-year 2023, the GDP growth in the second estimate was unrevised at 2.5%, compared to 1.9% in 2022. 

This week, investors are expecting non-farm payrolls on Friday to expand by 190,000 in January, slower than the 353,000 job gains in December.

The unemployment rate is expected to hold steady at 3.7%, and wage growth is expected to cool to 0.2%.

Moreover, the JOLTs report on Wednesday is expected to show job openings shrank to 8.9 million, following two months of increases in a row. 

 

U.S. indexes and Yields

The S&P 500 index decreased 0.1% to 5,131.86, and the Nasdaq Composite decreased 0.1% to 16,260.71. 

The yield on 2-year Treasury notes decreased to 4.57%, 10-year Treasury notes inched down to 4.21%, and 30-year Treasury bonds edged down to 4.37%.

WTI crude oil increased $0.46 to $79.50 a barrel, and natural gas prices decreased 13 cents to $1.97 a thermal unit.

Gold increased by $1.21 to $2,082.22 an ounce, and silver fell 7 cents to $22.70. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 103.93.

 

U.S. Stock Movers

Apple decreased 1.7% to $177.14 after the European Commission fined the popular iPhone maker Є1.8 billion for its alleged "abusive" app store practices for streaming music service providers. 

Cryptocurrency-linked stocks advanced after Bitcoin surged 3.5% to 65,367.20, only 5% shy of its record high of $69,000. 

Coinbase advanced 6% to $219.32, MicroStrategy soared 9.2% to $1,183.0, Marathon Digital gained 4.5% to $28.09, Robinhood Markets inched up 3.2% to $17.11, and Riot Platforms traded up 4.4% to $17.11. 

Super Micro and Deckers Outdoor advanced after the two companies were selected to be added later in the month to the popular benchmark S&P 500 index managed by S&P Dow Jones Indices. 

Zions Bancorp and Whirlpool will be moved from the S&P 500 to the S&P MidCap 400 index. 

Super Micro Computer jumped 15.96% to $1,050.02, and Deckers Outdoor jumped 4.3% to $942.0. 

Spirit Airlines plunged 14% to $5.55 and JetBlue gained 4% to $6.70 after the two companies canceled their merger plans, facing antitrust regulatory hurdles. 

 

European Markets Rest Near Record Peaks Ahead of Rate Decisions 

European markets hovered near record highs as investors digested a flood of inflation data last week and awaited more clarity from central bankers. 

The European Central Bank is set to announce its monetary decision on Wednesday, and the central bank is widely anticipated to keep rates steady but may clarify the rate path ahead. 

Last week, inflation eased in the eurozone, Germany, France, and Spain but stayed above the 2% target set by the European Central Bank.

Retail sales in Germany decreased, and the jobless rate edged up to 5.9%, but payrolls in France held steady in the fourth quarter.

Swiss GDP growth slowed for the third year in a row to 0.8% in 2023, and UK home prices rose in February after falling in the previous eleven months in a row. 

Swill annual inflation rate eased to 1.2% in February from 1.3% in January, the lowest level since October 2021, the Swiss Federal Statistical Office reported Monday. 

Core inflation rate, which excludes fresh food and energy,  in the month eased to 1.1% from 1.2% in the previous month. 

Investors are also looking forward to the release of fourth-quarter GDP in the eurozone and international trade data for France and Germany.

In addition, retail sales in the eurozone are expected to rebound in January after falling at the fastest pace in one year in December. 

 

Europe Indexes and Yields

The DAX index decreased by 0.2% to 17,704.17, the CAC-40 index gained 0.1% to 7,940.28, and the FTSE 100 index inched lower by 0.6% to 7,638.03.

For the week, the DAX index advanced 1.8%, the CAC 40 decreased 0.4%, and the FTSE 100 index dropped 0.5%. 

The yield on 10-year German bonds edged down to 2.38%; French bonds inched lower to 2.86%; the UK gilts edged lower to 4.09%; and Italian bonds inched lower to 3.84%.

The euro edged higher to $1.085, the British pound inched higher to $1.267, and the U.S. dollar weakened to 88.32 Swiss cents.

Brent crude decreased $0.41 to $83.15 a barrel, and the Dutch TTF natural gas increased by €1.10 to €26.19 per MWh.

 

Europe Stock Movers

BNP Paribas increased 1.7% to €57.03 after the financial services company launched a €1.055 billion stock repurchase plan. 

Evonik Industries inched up 0.3% to €17.22 after the German chemical company announced plans to cut 2,000 jobs around the world by 2026 to streamline costs. 

The company offered a muted business outlook in 2024. 

Aviva decreased 0.1% to 447.20 pence after the insurance company agreed to acquire underwriting syndicate Probitas for £242 million. 

Henkel declined 4.8% to €67.04 after the chemical and German consumer products company estimated slower organic sales growth between 2% and 4% in the current year. 

Delivery Hero added 0.9% to €67.04 after the online food ordering and delivery company announced it extended its €1.1 billion loan facility by two years to August 2029 and raised a new debt of €500 million to repurchase convertible bonds and cover general corporate expenses. 

The company also reiterated the previously announced growth in gross market volume between 7% and 9% in constant currency. 

 

 

Nikkei 225 In Tokyo Closed at New Record High

In Asia, bench market indexes in Japan advanced on the speculation that the government is ready to declare the end of deflation, Chinese lawmakers gathered for their annual legislative meeting, and India's market looked higher. 

The benchmark Nikkei index crossed 40,000 for the first time in the hopes of more support from the government and enthusiasm about the artificial intelligence boom lifting the sale of semiconductor chip-making equipment. 

The Nikkei 225 average gained 0.5% to 40,099.09, and the TOPIX edged slightly lower by 0.07% to 2,707.47.

Tokyo Electron, Disco Corp., Screen Holdings, and Softbank gained between 1.3% and 3%. 

The current market rally in benchmark indexes in Japan is largely driven by the hopes of sustained corporate governance reforms, a 34-year low yen, and the Nippon Individual Savings Account for individual investors. 

Global funds' allocation to Japanese equities is still lower than benchmark weights, suggesting there is room for increasing allocation to Japan if corporate results continue to outperform expectations. 

The Nikkei Stock Average has gained 19% in the year so far, following a 28% rally in 2023, and surpassed the previous high set in December 1989. 

Japanese stocks are still viewed as reasonably priced, with a price-to-earnings ratio just above 17 and significantly lower than 60 at the height of the market bubble 34 years ago.

The weakening yen has also supported earnings growth at Japanese companies, but the rapid decline in the yen could become a negative factor for foreign investors, the main drivers of the current market rally. 

 

China's Policy Uncertainties Keep Indexes Down

Market indexes in China drifted lower after trading mixed in the previous week as investors looked ahead to the release of economic targets for the current year and policies to revive property markets and stabilize financial markets. 

Chinese lawmakers gather in Beijing this week for their annual legislative meetings, widely known as "Two Sessions" or "lianghui." 

Lawmakers are likely to finalize the annual economic growth target, announce high-level personnel appointments, and ramp up national security rhetoric involving China's commitment to taking control of Taiwan. 

Investors are also awaiting clarity on the government stimulus plans to revive the faltering economic rebound and step up market intervention to arrest falling market indexes. 

Policymakers are expected to announce an annual economic growth target rate of at least 5% and a budget deficit of around 3% of gross domestic product. 

The Chinese government's economic growth targets are perceived with deep skepticism, reflecting a widespread practice of managing figures to satisfy the leadership's objectives. 

The CSI 300 index added 0.2% to 3,544.10, and the Hang Seng index declined 0.2% to 16,552.81. 

Tech stocks were among the leading decliners in Monday's trading, and Tencent, Alibaba Group, and Trip.com declined between 1% and 3%. 

EV makers were on the slide amid growing price competition in China's crowded EV market. 

Li Auto fell 5%, BYD declined 1.5%, and Geely Automotive fell 1.2%. 

 

India Indexes Traded Around Record Highs 

Stocks in Mumbai opened higher in Monday's trading as investors digested the economic updates of last week and reassessed the economic growth and interest rate outlook. 

The Sensex and the Nifty indexes edged higher by 0.1% and extended the previous week's gains, and investors focused on large-cap stocks in power, retail, consumer products, and financial services companies. 

The faster-than-expected increase in economic growth of 8.4% in the December quarter overshadowed the muted increase in core industrial production in January. 

Market sentiment remained positive despite the net investment outflow by foreign investors in January, as investors estimated higher economic growth would support growth in corporate earnings in the March quarter. 

The Sensex index increased 0.1% to 73,875.02, and the Nifty index rose 0.2% to 22,413.0.

On the Mumbai stock exchange, 229 stocks traded at their 52-week highs and 18 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds increased to 7.06%, and the Indian rupee strengthened to ₹82.87 against the U.S. dollar.