USA
Stocks recorded their third consecutive week of broad losses, as concerns over tensions in the Middle East and the possibility of U.S. interest rates remaining “higher for longer” appeared to weigh on sentiment. Mega-cap technology shares lagged as rising rates placed a higher theoretical discount on future earnings. A first-quarter revenue miss from advanced chipmaker supplier ASML Holdings also seemed to weigh on the sector and on general optimism toward companies with artificial intelligence (AI)-related earnings, according to T. Rowe Price traders. Small-caps continued to struggle, pushing the small-cap Russell 2000 Index further into negative territory for the year-to-date period.
Some strong economic data appeared to increase worries that the Federal Reserve would push back any interest rates cuts to the fall, if not to 2025. On Monday, the Commerce Department reported that retail sales rose 0.7% in March, well above consensus expectations of around 0.3%, while February’s gain was revised upward to 0.9%.
Conversely, downward surprises in housing market data may have furthered inflation fears by auguring continued supply tightness. Housing starts and permits in March came in well below expectations and declined from February, with the former falling to the lowest level in seven months. Existing home sales also declined, although largely in line with expectations, as the average 30-year mortgage rate climbed above 7% for the first time since December.
Europe
STOXX Europe 600 Index ended 1.18% lower as tensions rose in the Middle East. Major stock indexes were mixed: Germany’s DAX fell 1.08%, Italy’s FTSE MIB gained 0.47%, and France’s CAC 40 Index was little changed. The UK’s FTSE 100 Index declined 1.25%. European government bond yields broadly climbed.
Japan
Amid an escalation in tensions in the Middle East, Japan’s stock markets suffered sizable losses over the week. The Nikkei 225 Index was down 6.2%, and the broader TOPIX Index lost 4.8%. An additional factor weighing on the markets was some concern about waning AI-related demand.
In fixed income, the yield on the 10-year Japanese government bond closed the week at around 0.84%, broadly unchanged from the prior week. Bank of Japan Governor Kazuo Ueda echoed previous comments in stating that, if weakness in the yen exerts significant upward pressure on inflation, a rate hike may be warranted.
China
Chinese equities rose after the economy expanded more than expected in the first quarter. The Shanghai Composite Index gained 1.52%, while the blue chip CSI 300 added 1.89%. In Hong Kong, the benchmark Hang Seng Index gave up 2.89% as escalating geopolitical tensions in the Middle East hurt investor sentiment.