As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
Despite significant variability in index returns, the US economy continues to demonstrate resilience, with the fastest pace of private sector growth since May 2022, and weekly jobless claims remaining near a five-decade low. However, worries about the banking industry and recession concerns continue to weigh on value stocks and small-caps, while large-cap growth stocks benefit from falling interest rates. The technology-heavy Nasdaq Composite outperformed the small-cap Russell 2000 Index by 8.28 percentage points. While the financials sector underperformed for the third consecutive week, new deals in the investment-grade sector, dominated by utility providers, were met with healthy demand.
The Federal Reserve raised official short-term rates by 25 basis points as expected, with individual policymakers’ rate expectations indicating a growing disparity in outlooks, and references to ongoing rate increases removed from the official statement. While tensions in the banking system have tightened credit conditions, the Fed's change in tone appears to be driven by forecast uncertainty rather than a strong conviction, making a pause after May all but certain. The economy still had significant steam heading into the banking turmoil, but corporate bond issuance trailed off amid uncertainty.
European shares advanced on Friday, with major stock indexes posting gains despite weakness in bank stocks. The pan-European STOXX Europe 600 Index closed 0.87% higher in local currency terms, while Italy’s FTSE MIB climbed 1.56%, France’s CAC 40 Index gained 1.30%, Germany’s DAX advanced 1.28%, and the UK’s FTSE 100 Index added 0.96%. Bank stocks in the STOXX Europe 600 Index saw a decline at the end of the week, but minutes from the Bank of England’s meeting showed confidence in the UK banking system, and macroeconomic data suggested a resilient economy with a possible return to growth in Q1. The Eurozone composite PMI rose to a 10-month high in March, driven by strong growth in the services sector, despite a drop in manufacturing activity.
Japan's stock market experienced mixed returns last week, with the Nikkei 225 Index gaining 0.19%, and the TOPIX dropping 0.21%. However, investor concerns were eased as six major central banks, including the Bank of Japan, announced coordinated action to ease global funding market strains. While the core consumer price index in Japan rose 3.1% YoY in February, down from January's 4.2%, the contribution from energy fell notably due to government electricity subsidies to cushion the impact of price pressures. Meanwhile, Chinese stocks rose on hopes that the country's central bank would maintain an accommodative stance amidst the global banking turmoil. The Shanghai Stock Exchange Index gained 0.46%, and the blue-chip CSI 300 added 1.72%.
Overall, the global markets demonstrated a mix of resilience and volatility, with various factors such as central bank actions, economic data, and corporate developments contributing to the performance of different regions and sectors.