Markets & Economy

Global Markets Weekly Update

February 17, 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.


Large-cap stocks lead weekly gains

Stocks posted gains for the week, with the large-cap Dow Jones Industrial Average generating the best returns while the small-cap Russell 2000 Index lagged. The Standard & Poor’s 500 Index extended its record-breaking streak without a daily change of plus or minus 1%. However, the CBOE Volatility Index of intraday volatility, known as the VIX, ticked upward even as the streak of curiously low daily price swings remained intact.

Strong economic data

U.S. economic data released during the week were generally strong. Core retail sales increased 0.6% in January and the core consumer price index rose 0.3% during the month, while readings on business sentiment from the National Federation of Independent Business and the New York Federal Reserve were strong for January and early February. Fed Chair Janet Yellen’s congressional testimony on Tuesday and Wednesday was generally interpreted as hawkish, raising the odds of a rate increase at a Fed policy meeting before June. However, T. Rowe Price Chief U.S. Economist Alan Levenson believes that the Fed will hold off on its next rate hike until its June meeting, strengthening its forward guidance about a June rate increase in the meantime.

The increasing expectations for the Fed to move rates higher sooner rather than later boosted the financials sector to solid returns, led by banks that would benefit the most from higher interest margins as short-term rates increase. Strong performance from biotechnology and pharmaceutical stocks drove gains for the health care sector. T. Rowe Price traders noted that the factors behind the move in biotech and pharmaceuticals, which have significantly lagged the broad market in recent months, were less clear.

Bonds: Treasury yields little changed after Friday rally

U.S. Treasury yields finished the week little changed as a Friday rally drove yields lower, offsetting yield increases earlier in the week. (Bond prices and yields move in opposite directions.) Investment-grade corporate bonds benefited from a manageable level of new issuance and equity market strength, although T. Rowe Price bond traders noted that investors seemed hesitant to add to riskier holdings in the secondary market. High yield bonds also generated gains as investors continued to move money into the asset class in search of yield.

Municipal bonds declined despite a relatively light new issuance calendar. The yield on 10-year benchmark municipal debt increased to its highest level in 2017. However, the municipal market improved toward the end of the week as Treasuries rallied.

U.S. Stocks1

Friday’s Close

Week’s Change

% Change YTD









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.

1Source of data Reuters, obtained through Yahoo! Finance Closing data as of 4 p.m. ET.

2The Dow Jones Industrial Average and 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 by market capitalization of the U.S. equity markets. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock market and the National Market System.


Some of the steam propelling European equities upward cooled this week, but most major indexes ended higher. On Wednesday, the Pan-European Euro Stoxx 600 recorded its highest close since December 2015. However, the index snapped an eight-day winning streak on Thursday, despite a trend of renewed optimism about global growth. Investors may have pulled back over some concerns that the recent rally had been overly exuberant.

Miners and automakers drove momentum early in the week, as T. Rowe Price traders noted that the bulk of earnings season has ended for European companies. By midweek, banks outperformed the broader market as some investors apparently believed that U.S. Federal Reserve Chair Janet Yellen's testimony signaled better odds of another interest rate increase in the near term. But by the end of the week, banks fell back and energy and mining stocks were weighed down by a stronger dollar, T. Rowe Price traders said.

Fading optimism for a deal with Greece’s creditors

Greek government bonds sold off this week as hopes faded for securing an agreement with the country's creditors at next week's Eurogroup meeting. European Union (EU) officials' expectations for a comprehensive agreement over Greece’s €86 billion bailout program have now shifted to subsequent meetings in March or April due to frictions between the EU and the International Monetary Fund. The yield on two-year Greek government bonds rose above 9.6% on Thursday.

T. Rowe Price global fixed income Portfolio Manager Kenneth Orchard said that the window for reaching a deal is closing. “As key elections are taking place in Europe in April and May, Greece is unlikely to be on top of the European political agenda,” he said. “If the situation is not resolved by early July, there could be a repeat of the volatility in peripheral markets that occurred in the summer of 2015.”

Global uncertainty dents economic growth projections

The European Commission said that for the countries sharing the euro, growth would slow a bit to 1.6% in 2017 from 1.7% in 2016. The uncertain outcome of the coming elections in Germany and France, the ongoing ramifications of Brexit, and the direction of U.S. policies are likely to weigh on growth, the commission said. However, in 2018, growth for the 19 countries that share the euro is expected to outpace both 2016 and 2017, the commission said.

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The large-cap Japanese stock market benchmarks declined for the week but remained in positive territory for the year to date. The widely watched Nikkei 225 Stock Average lost 0.74% (144 points) and closed at 19,234.62. For the year to date, the Nikkei is up 0.63%, and the broad-based TOPIX Index has gained 1.7%. Bucking the negative trend for the week, the TOPIX Small Index rallied about 1.1% and is up 3.2% thus far in 2017. The yen was modestly stronger for the week and closed at ¥112.7 per U.S. dollar, about 3.5% stronger than the ¥117 per dollar level from the end of 2016.

Exports drive fourth-quarter GDP gains

Japanese gross domestic product (GDP) rose 1.0% on an annualized basis versus the year-ago period and 0.2% on a quarter-over-quarter basis, based on preliminary estimates from the Cabinet Office. Both figures were slightly below the consensus forecasts. Yen weakness spurred export and business investment gains, while domestic consumption flatlined at 0.0% in the final three months of the year. Although the latest numbers didn’t shoot the lights out, Japan’s GDP has expanded for four consecutive quarters, which marks the best stretch in three years. HSBC’s take on the latest quarterly figures was, “Japan’s growth continues to be supported by better demand abroad, but this positive development is yet to pass through to domestic demand.” The average worker’s inflation-adjusted income grew only 0.7% in 2016, following four consecutive years of declines, according to the Labor Ministry.

Trump tweet, “Having a great time...”

Prime Minister Shinzo Abe and President Donald Trump played golf with four-time major champion Ernie Els on Saturday at Trump’s Mar-a-Lago resort after a formal meeting at the White House on Friday. The prime minister no doubt extolled the merits of his “U.S.-Japan Growth and Employment Initiative” program, which has a 10-year goal of creating 700,000 U.S. jobs in new markets worth $450 billion. According to The Wall Street Journal and U.S. Commerce Department data, approximately 840,000 U.S workers were employed by Japanese companies in 2014 (the latest available data) and Japanese investments in the U.S. more than doubled to $411 billion in the past 10 years through 2015.

Japan’s mammoth annual trade surplus (second only to China) remains a major point of contention for President Trump—Japanese autos and auto parts make up a significant portion of the imbalance. American automakers have minimal market share in Japan, although there are no Japan-imposed trade barriers or tariffs. Japan had lobbied for the 12-country Trans-Pacific Partnership (TPP) in an effort to limit criticism about the trade surplus. However, President Trump shelved the TPP in his first days as president, stating that he favored bilateral trade negotiations. President Trump believes that he will have more leverage in generating concessions from U.S. trading partners in one-on-one negotiations.

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China’s indebtedness continues to surge as credit hits a record in January

China’s ongoing reliance on debt-fueled spending to spur economic growth was laid bare last week after a broad measure of credit rose to a record high last month. Total social financing, which measures new credit in the economy, including bank loans and nonbank financing, rose to a record 3.74 trillion yuan ($545 billion) in January, according to China’s central bank. Despite the rising headline number, total credit growth continues to decline modestly, according to Bloomberg.

The latest report is consistent with a trend showing that growth in overall credit continues to outpace that of the broader Chinese economy since the 2008–2009 global financial crisis, raising alarm that China’s debt levels are reaching dangerously high levels.

After a research trip to China earlier this year, T. Rowe Price investment managers believe that fixed-asset investment spending begun in the first half of 2016 will carry into 2017 as many projects are still being built. However, our analysts see little scope for further stimulus spending in China in this year’s second half given that officials are expected to focus on stability ahead of a key leadership meeting in the fall and the waning appetite to finance such projects, according to T. Rowe Price Hong Kong-based Portfolio Specialist Nick Beecroft.

Besides posing a threat to China’s financial stability and hurting its medium-term growth prospects, persistent use of debt to spur growth has led to myriad other problems, including a glut of unwanted goods, a rapid pileup in corporate leverage, and a housing bubble in many cities. Over the long term, T. Rowe Price analysts see China’s economic growth grinding lower over many years as long as the country refrains from making significant structural changes.

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Other Key Markets

Pemex launches biggest euro-denominated emerging markets corporate deal on record

Pemex, Mexico’s state-controlled oil company, issued €4.25 billion of bonds in the biggest euro-denominated corporate bond deal ever done by an emerging markets issuer. The deal was more than four times subscribed, which some investors attributed to confidence in the company. The debt was issued across three maturities, with bonds maturing in 2021, 2024, and 2028. The yields on the bonds came in lower than expected despite the country’s financial struggles in recent years. The euro-denominated market in emerging markets corporate debt is still small compared with the U.S. dollar market, but it has grown in recent years. The issue follows a $5.5 billion Pemex bond deal in December.

Egyptian pound rises amid investor interest

The Egyptian pound rose about 9% this week against the U.S. dollar as investors moved back into the country, which has been implementing meaningful structural reforms. The Egyptian central bank stopped pegging the pound to the dollar in November in an effort to attract foreign capital. On Thursday, the central bank left its key interest rate unchanged even as the inflation rate soared to 31% in January.

In January, Egypt brought new sovereign bonds to market for the first time since devaluing its currency and accepting a loan from the International Monetary Fund last fall. Egypt’s return to debt markets underscores the resurgent investor appetite for emerging markets debt that has ushered in successful recent bond issues for Argentina, Turkey, Honduras, and Colombia.

Norway considers allowing SWF to take more risk

Norway proposed changes to the mandate of its $900 billion sovereign wealth fund (SWF)—the world’s largest—that would cut the amount of oil money the country can spend each year and allow the fund to invest about $90 billion more in higher-risk stock markets.

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