USA
The major equity benchmarks retreated for the week amid heightened fears of conflict in the Middle East and some signs of persistent inflation pressures that pushed long-term Treasury yields higher. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Growth stocks also fared better than value shares, which were weighed down by interest rate-sensitive sectors, such as real estate investment trusts (REITs), regional banks, housing, and utilities.
The primary factor weighing on sentiment appeared to be Wednesday morning’s release of the Labor Department’s consumer price index (CPI) data, which showed headline prices rising by 0.36% in March, right in line with February’s increase, in contrast with consensus hopes for a small decline from the month-earlier pace. A rebound in the price of medical services (from -0.1% in February to +0.6% in March) was partly to blame, as was a continuing sharp rise in transportation services costs, which rose 10.7% over the preceding 12 months - Fed largely by increases in the cost of car insurance. Overall inflation rose 3.5% over the preceding 12 months, its biggest gain since September.
Europe
STOXX Europe 600 Index ended 0.26% lower. Major stock indexes also fell. Germany’s DAX lost 1.35%, France’s CAC 40 Index declined 0.63%, and Italy’s FTSE MIB slid 0.73%. However, the UK’s FTSE 100 Index bucked the downtrend, gaining 1.07%. The British pound’s weakness relative to the U.S. dollar helped support the index, which includes many multinationals that generate meaningful overseas revenue.
After trending lower early in the week, yields on French, German, and Italian government bonds jumped on news that U.S. inflation had accelerated faster than expected in March. Yields subsequently pulled back from these highs as the European Central Bank (ECB) held key rates steady but hinted strongly that it might lower them soon. UK bond yields rose, lifted in part by hawkish comments from Bank of England policymaker Megan Greene, who warned that “rate cuts should still be a way off.”
Japan
Japan’s stock markets gained over the week, with the Nikkei 225 Index up 1.4% and the broader TOPIX rising 2.1%. As the Japanese yen hovered close to a 34-year low, investors’ focus was on whether the country’s authorities would step in to support the currency.
Following a hot U.S. inflation print and subsequent rise in U.S. Treasury yields, the 10-year Japanese government bond yield rose to 0.84%, from 0.77% at the end of the previous week. It briefly touched its highest level since November 2023 during the week.
China
Chinese stocks retreated as weak inflation data underscored the lackluster demand hanging over China’s economy. The Shanghai Composite Index declined 1.62%, while the blue chip CSI 300 gave up 2.58%. In Hong Kong, the benchmark Hang Seng Index ended nearly flat from last week after apprehensions about the flagging recovery pared earlier gains.