World markets finished the week out in mixed fashion. The week’s headline event was a
spectacular cryptocurrency plunge with the damage spreading to equity markets which turned volatile. Bitcoin dropped more than 20% for the week to close to $38,000, its lowest levels since February, after Elon Musk turned negative on the world’s most popular digital asset and the People’s Bank of China warned against institutions and businesses from engaging in any form of virtual currency transactions.
In the U.S. the major averages turned in a mixed performance and for the first time in six weeks the NASDAQ outperformed the S&P 500. Traders digested a Labor Department report, the minutes of the last Fed meeting and a slew of other economic data. Initial jobless claims once again dropped to their lowest level in well over a year, fueling optimism but retail sales, new housing starts and confidence indicators all came in below expectations.
The minutes of the Fed’s April monetary policy meeting noted that, “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”
The Fed’s monthly asset purchase programme stands at USD 120 billion. The idea of reducing the programme due to concerns over inflation sent risk-driven assets, particularly in emerging markets, tumbling. While the deadline for the Fed to consider tapering is still a way off, investors fear a continued rise in U.S. Inflation could bring the date forward.
Latin American assets were also volatile this week. In Colombia, S&P Global Ratings downgraded the country into the below-investment-grade universe amid a political crisis and mass unrest. The move comes after President Iván Duque Márquez withdrew a tax reform bill due to social pressures.
In Brazil, the Bovespa advanced. Brazil’s government will cut its stake in state-controlled electric power Centrais Eletricas Brasileiras SA, or Eletrobras, to 45% from its current 61%. Meanwhile, April IPCA inflation stood at 6.8%, in line with consensus.
In Chile bonds, currency and stocks all sank on Monday after a shock result to the vote over the drafting of a new constitution. The copper-producing country and one of the wealthiest, most stable democracies in Latin America will hold a general election in November.
Europe traded mostly higher on signs that the economy is rebounding as Covid-19 restrictions begin to ease in France, Italy, Ireland, Portugal, the Netherlands and other countries .On the data front, the IHS Markit Eurozone Composite PMI, seen as a good guide to economic health, rose to 56.9 in May from April’s final reading of 53.8 and above market consensus of 55.1.That was its highest level since February 2018. In the U.K., April retail sales surged 9.2%. The European Central Bank (ECB), reaffirmed their cautious stance, helping to maintain support for equity indices. However, worries about inflation curbed gains.
African equity markets were mixed. The Bourse Régionale des Valeurs Mobilières SA, or BRVM, the Abidjan-based stock exchange serving Benin, Burkina Faso, Guinea Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo, led the pack. The regional market is now up 5.73% year-to-date while the total market capitalization at the BRVM stands at XOF 4,625bn (USD 8.61bn). At the other end of the scale, assets in Ghana were off for the second week in a row. South African stocks also dropped for the second consecutive week. In Egypt, equities cooled down, bears were also in Lagos while stocks in Kenya remained flat. In Morroco equities enjoyed their 11th consecutive week of gains.
Japanese stocks edged higher for the week but data were mixed. Japan’s gross domestic product
shrunk by an annualized 5.1% in the first quarter—a sharper contraction than expected. April’s exports were strong, jumping 38 percent from a year earlier to JPY 7,181 billion and lending support to a trade-led recovery. Manufacturers’ business confidence rose to its highest level since late 2018.
Chinese equities were mixed. Retail sales grew 17.7 percent in April, easing from a 34.2 percent jump in the prior month and missing market consensus of a 24.9 percent growth.
On Wednesday, China’s cabinet vowed to strengthen its management of commodity supply and demand to curb “unreasonable” and speculative price movements.
In Australia, the ASX recorded a narrow weekly gain. The country reported that its manufacturing sector grew at a faster pace than in April, and the strong expansion for its services sector remained despite a slight slowdown.
Volatility in the world markets is lingering. Investors continued to grapple with elevated inflation worries as we remain far from meeting goals of maximum employment and solid recovery in the economy. We will also will need some strong signs of earnings growth to push markets higher.
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