Markets & Economy

Global Markets Weekly Update

August 11, 2017

Review the performance of global stock and bond markets over the past week, along with relevant insights from T. Rowe Price economists and investment professionals.


String of record highs, low volatility ends amid belligerent rhetoric

Growing concerns about the risk of conflict on the Korean Peninsula and some disappointing corporate earnings reports sent the major U.S. equity benchmarks lower for the week. The Dow Jones Industrial Average’s streak of nine record-setting high closes ended Tuesday as rhetoric between the U.S. and North Korea escalated, with President Donald Trump saying that North Korean aggression would be met by “fire and fury.” More substantial losses followed on Thursday—for the day, the tech-heavy Nasdaq Composite lost 2.13%, the broader S&P 500 Index declined 1.45%, and the blue chip Dow was off nearly 1%.

Thursday’s sell-off ended a period of record-low volatility during which the S&P 500 Index had gone 15 days without moving more than 0.30%. Equities recovered somewhat on Friday. Despite the down week, U.S. large-cap stocks and the tech-heavy Nasdaq Composite still have substantial year-to-date gains, while small- and mid-cap shares are holding on to smaller gains.

Disney, retailers struggle after weak earnings reports

In stock-specific news, Walt Disney traded down after reporting weak second-quarter results that included declines in the number of its cable network subscribers (primarily from ESPN) and decreasing advertising revenue. Disney’s announcement that it intends to focus on distributing its own content to consumers weighed on Netflix shares. Several major retailers also lost ground after disappointing earnings reports, including Macy’s, which declined more than 10% on Thursday.

Bonds: Demand strong for Treasuries, munis

Investor demand for safe-haven securities pushed the yield of the 10-year U.S. Treasury note down to about 2.20% by Friday, its lowest level since June. (Bond prices and yields move in opposite directions.) U.S. tax-free municipal bonds also recorded solid gains, supported by healthy demand, oversubscribed new issues, and limited offerings in the secondary market. However, technical conditions were unfavorable for the investment-grade corporate bond sector. There was heavy new issuance activity in the first part of the week, and demand from investors in Asia was not as strong as it has been—which is not unusual when volatility spikes. Credit spreads—the additional yield that investors demand for holding a bond with credit risk—widened throughout the week. Geopolitical tensions, new supply, and some disappointing earnings reports contributed to weakness in the high yield bond market.  

Inflation remains low

According to the latest report from the Bureau of Labor Statistics, the consumer price index rose 0.1% in July, less than consensus expectations. Over the past 12 months, prices have increased 1.7%, which is less than the Federal Reserve’s 2% inflation target. T. Rowe Price Chief U.S. Economist Alan Levenson observed that motor vehicle prices continued to fall, as dealers work through new car inventories and deal with a glut of used cars coming from rental car companies, among other factors. Besides vehicles, core goods (which exclude the food and energy sectors) posted a small increase, likely showing some impact from recent dollar weakness, said Levenson.

In separate reports, job openings reached a record high in June, while new jobless claims remained near historic lows, although they ticked up from the previous week.

U.S. Stocks1

Friday’s Close

Week’s Change

% Change YTD





S&P 500




Nasdaq Composite




S&P MidCap 400




Russell 2000




This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell® is a trademark of Russell Investment Group.


European stocks fell following rising tensions between U.S. President Donald Trump and North Korea’s leader Kim Jong-un. The pan-European benchmark Stoxx 600 logged three consecutive days of losses, ending the week nearly 3% lower—one of the worst weekly losses this year. The FTSE 100 hit a three-month-low on Friday, and on Thursday Germany’s DAX 30 briefly traded below the 12,000 level for the first time since April.

T. Rowe Price traders noted that the war of words between the two world leaders injected more volatility into equity trading, sparked unrelenting selling pressure in futures markets, and overshadowed the week’s upbeat European corporate earnings results. Assets viewed as riskier were hit hardest during the week, as investors gravitated toward more “safe haven” investments. Basic resources stocks led the march downward, further fueled by a commodities sell-off and a cautionary statement from China on iron ore prices. The banking and oil and gas segments and some technology stocks were also weak.

Movement toward bonds

German bunds rallied on safe-haven demand this week as they tracked moves in U.S. Treasuries amid ongoing geopolitical tensions. The yield on 10-year bunds fell below 0.42% at Thursday’s close, the lowest level since late June.

Stagnating housing prices in the UK

Political uncertainty in the age of Brexit has dampened housing prices in the UK to their weakest level since 2013, according to a survey by the Royal Institution of Chartered Surveyors (RICS). The survey suggested that the housing market would continue to falter for the remainder of 2017.


Japanese stocks declined in the holiday-shortened trading week—the market was closed on Friday for Mountain Day. The widely watched Nikkei 225 Stock Average fell 223 points (1.1%) and closed on Thursday at 19,729.74. For the year to date, the Nikkei is up 3.2%, the broad-based TOPIX Index is up 6.5%, and the TOPIX Small Index has advanced about 13.3% this year. The yen strengthened versus the greenback for a fifth consecutive week, and closed near ¥109/dollar, which is about 6.8% stronger than ¥117 per dollar at the end of 2016. 

Removing hard inflation timeline

It seems that the Bank of Japan (BoJ) has abandoned its definitive time frame for achieving its 2% inflation target. Despite aggressive stimulus measures, inflation has barely budged. The BoJ has postponed achieving its target a half-dozen times since 2013, when it pledged 2% inflation in two years. In a recent news conference, BoJ board member Yukitoshi Funo publicly acknowledged that the central bank had thrown in the towel on a definitive date for meeting its inflation goal. “We still pledge to hit the target,” Funo said, adding, “I don’t expect prices to surge anytime soon.” 

Kiuchi says it’s time to lessen monetary stimulus

Former BoJ board member Takahide Kiuchi believes that the central bank should begin ratcheting back its aggressive monetary policy operations. Kiuchi told the financial media that the central bank is likely to unveil a plan to gradually unwind the BoJ’s stimulus program. He thinks the central bank could refocus its buying initiative on controlling bond yields in the three- to five-year range because the BoJ will soon run out of bonds to purchase under the existing yield curve control program, focused on the 10-year Japanese government bond (JGB) yield. Kiuchi has also argued that the BoJ’s credibility would be enhanced by revising the policy and illuminating the potential risks associated with the current bond-buying program.

Iwata concurs

Former BoJ Deputy Governor Kazumasa Iwata thinks it is time for the central bank to slow down the pace of its JGB purchases. Iwata has been critical of the BoJ for being too optimistic about its inflation goal, believing that 1% inflation will be a challenge given the tepid recent price trends. He’d like to see the BoJ halve the pace of its purchases to ¥40 trillion (approximately $360 billion) per year, making its policy more sustainable. In Iwata’s view, the central bank should also consider reducing its exchange-traded fund purchases, because the buying is creating distortions in the market.


China foreign reserves rise in July to a nine-month high

China’s foreign currency reserves increased more than forecast in July to a nine-month high, signaling that Beijing’s efforts to curb capital outflows have been successful. Reserves rose for the sixth straight month to $3.081 trillion, up $23.93 billion from June, the People’s Bank of China (PBOC) reported. The recent string of monthly increases in China’s cash stockpile, the world’s biggest, follows measures implemented by the PBOC over the past year aimed at making it harder for Chinese investors and companies to move money abroad, which increases downward pressure on the yuan.

Analysts pay attention to China’s reserves each month because they show how much the government is dipping into its reserves to support the yuan. China’s reserves totaled nearly $4 trillion at their peak in June 2014. However, officials spent hundreds of billions in dollar terms in 2015 and 2016 to stabilize the yuan, which faced depreciation pressure amid concerns about China’s slowing economy. The yuan fell 6.6% against the dollar in 2016 but year-to-date is up about 3.3% as of the end of July, along with most other global currencies that have strengthened versus the dollar this year. Despite the recent gains in Chinese reserves, a faster-than-expected slowdown and a resumption of capital outflows still pose risks to China’s outlook, believes T. Rowe Price sovereign analyst Chris Kushlis. 

Other Key Markets

South African president survives no-confidence vote

Emerging markets equities broadly held up better than stocks in major developed markets, although emerging markets also suffered as investors fled riskier asset classes. South African President Jacob Zuma narrowly survived a bid by opposition lawmakers to oust him via a parliamentary no-confidence vote—the sixth since he took office in 2009. The country’s stock market showed little reaction to the outcome of the vote. South Africa’s currency, the rand, fell against the U.S. dollar when it became clear that Zuma would remain in office.

Protests continue in Venezuela

In Venezuela, protests against the government of President Nicolas Maduro continued as he extended his attempt to consolidate power by prosecuting opposition politicians. The U.S. expanded its sanctions to include eight additional Venezuelan officials connected to the creation of a new legislative body known as the constituent assembly, which is composed of allies of the ruling party and can re-write the country’s constitution. U.S. officials said that they could still impose sanctions on Venezuela’s oil industry, which is the country’s primary source of revenue. Bonds issued by the Venezuelan government and PDVSA, the state-controlled oil company, fell more than the wider emerging markets debt indexes.

Bank of Mexico keeps rates on hold

Mexico’s central bank kept interest rates steady and issued a neutral statement, ending a string of six consecutive policy meetings with rate increases. The country released a higher-than-expected inflation figure earlier in the week, which had led some analysts to expect a hawkish statement or even another rate hike from the central bank.

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