Global stock markets have made steady progress this week on hopes that central banks are near the end of their interest rate raising programmes
Efforts by officials in China to stimulate the country’s flagging economy have also boosted sentiment. While the latest inflation data from the United States showed an uptick in the headline rate of price rises, the core measure of inflation – which excludes more volatile elements such as energy costs – declined. As the Federal Reserve tends to focus more on the latter figure when making monetary policy decisions, this news was welcomed by investors.
Oil prices continued to rise, however, which could increase inflationary pressures around the world in the months ahead. In addition to recent production cuts imposed by Saudi Arabia and Russia, this week’s devastating floods in Libya are expected to also have a significant impact on crude supplies.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1% up for the week so far, with the S&P 500 gaining 1.1%. While the consensus among investors is that the Fed is unlikely to raise rates in the short term, the latest fall in unemployment claims could increase the pressure on officials to take further action to cool the American labour market, despite the welcome drop in core inflation. A successful Nasdaq IPO by a UK-based semiconductor firm helped drive gains across the technology sector towards the end of the week.
In the UK, the FTSE 100 closed 2.6% higher for the week so far, having enjoyed its best day of 2023 to date on Thursday as rising oil and commodity prices led to strength in energy and mining stocks. In particular, prices of precious metals benefited from hopes of faster Chinese growth. Recent data showed a rise in unemployment as well as an increase in wage inflation. Bank of England officials warned they may need to raise interest rates even further, despite government figures showing that the UK economy had shrunk by 0.5% in July. Poor summer weather was blamed for unexpectedly weak retail sales.
In Frankfurt, the DAX index ended Thursday’s session up 0.4% for the week, while France’s CAC 40 gained 0.9%. As expected, the European Central Bank raised interest rates by 0.25% at its Thursday meeting. Data that highlighted weakness across the eurozone economy raised hopes that this could be ECB’s final hike in the current cycle. Officials now expect the German economy to shrink overall in 2023 as a result of the energy price shock caused by Russia’s invasion of Ukraine last year.
In Asia, the Hang Seng index in Hong Kong dipped 0.8%, with ongoing concerns about the vulnerability of China’s real estate sector stifling share price gains. There was welcome news late in Thursday’s session when the country’s central bank announced a reduction in capita -reserve requirements for Chinese lenders in a bid to boost the availability of finance to businesses and consumers. Japan’s Nikkei 225 index of leading shares advanced 1.7% as hopes rose that the Fed may cut interest rates sooner than previously expected.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 14 September 2023.