US: S&P 500 Index -0.6%, Dow -1.1%, Nasdaq +0.7%
Europe: STOXX Europe 600 -0.29%, German DAX -1.7% France CAC 40 -0.01%, U.K. FTSE 100 +0.2%
Asia: Japan Nikkei +1.0%, China Shanghai Composite +0.9%, Korea KOSPI +0.2%
Rates/Commodities: 10-Year Treasury yield unchanged at 3.06%, WTI crude oil +2.1%, COMEX gold +1.0%
Global equities failed to gain traction, with major regional indexes moving in and out of positive territory throughout the week, as investors digested the Federal Reserve’s (Fed) monetary policy meeting and Italy’s budget proposal.
The Fed meeting garnered most of investors’ attention, though the unanimous decision to increase the fed funds target rate by 0.25% to a range of 2.00% – 2.25% was expected. Instead, investors focused on the Fed’s updated rate projections, changes in its policy language, and Chairman Powell’s post-meeting press conference. Overall, policymakers remain upbeat about the U.S. economy, and they increased projections for U.S. gross domestic product (GDP) growth on the heels of a strong second-quarter GDP print and improving economic data aided by fiscal stimulus. Central bankers updated their rate projections, forecasting one more rate hike in 2018 and three additional hikes in 2019. In the wake of the Fed decision, the yield on the benchmark 10-year Treasury note snapped a six-day string of gains, though it remains above the psychologically important 3% level. The financials sector slumped on the somewhat dovish tilt in the Fed’s messaging, weighing down the S&P 500 Index and Dow during the week. Relative strength in technology stocks and the new communications services sector (see S&P Sector Switcheroo) helped the Nasdaq stay afloat.
International markets were mostly lower on the week, hurt by the U.S. dollar’s strongest week since August. Japan was the exception to international weakness, as a weak yen powered the Nikkei to a 27-year high. European equity markets and the euro were both markedly lower on the week, following the announcement that Italy’s government agreed to a 2019 budget with a deficit projection of 2.4% of GDP, above the European Union’s mandate of less than 2% of GDP. European shares were also weighed down by a report showing Eurozone economic confidence fell for the ninth straight month, its longest slide since 2011. On foreign markets, LPL Chief Investment Strategist John Lynch noted, “The week’s volatility reflects our concerns about the impact of Europe’s political uncertainty on equities. Because of this, we continue to prefer U.S. and emerging-market stocks over international, developed-market shares for suitable investors.”
Looking ahead, the always-anticipated nonfarm payrolls report will be released Friday morning. Ahead of that, manufacturing and services data are scattered throughout the week in the U.S., Eurozone, and Japan. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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