A lack of positive news has resulted in widespread decline on global stock markets this week, with concerns about slowing growth and the possibility of further interest rate rises to the fore
The Chinese government’s ongoing attempt to stimulate the country’s economy received a lukewarm response from investors, while signs that central bank action in the UK has done little to slow inflation also prompted concerns. Indicators in the United States, however, suggest tighter monetary policy is starting to weigh on American economic activity – fuelling hopes that the Federal Reserve may be on the verge of bringing its interest rate-raising programme to an end.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1% down for the week so far, with the S&P 500 falling 0.6%. The latest increase in US unemployment claims further demonstrated that higher interest rates are having their intended effect. While Fed chair Jerome Powell told Congress this week that he and his colleagues were prepared to continue raising rates, he said their decisions would be “guided by the data” – a statement that was interpreted in a positive light by investors given recent signs of economic cooling.
In the UK, the FTSE 100 closed on Thursday 1.8% down for the week so far, with the more domestically focused FTSE 250 Index faring considerably worse (-3.7%). Figures published on Wednesday showed that inflation in Britain had unexpectedly remained stuck at 8.7% in May, and 24 hours later the Bank of England duly increased interest rates by 0.5 percentage points. Investors fear these additional rate hikes will drive the UK economy into a full-blown recession. Meanwhile, the recent surge in mortgage rates is expected to have a significant impact on household finances and consumer spending – as well as property-market activity – in the months ahead.
In Frankfurt, the DAX index ended Thursday’s session down 2.3% for the week, while France’s CAC 40 fell 2.5%. Worries about the impact of further eurozone interest rate rises dominated sentiment, while officials in Germany warned that the country’s recession was likely to be sharper than previously feared. There was some good news, however, in the shape of a rise in consumer confidence across the euro area, as well as signs that factory prices in the bloc’s largest economies have started to fall.
In Asia, the Hang Seng index in Hong Kong slumped 4.1% after recording its steepest falls in two months at the start of the week. Beijing’s attempts to stimulate the Chinese economy through a new wave of borrowing rate reductions were widely viewed as insufficient to address the recent slowdown. Signs of new political tensions between the US and China, meanwhile, added to the negative atmosphere. Japan’s Nikkei 225 index of leading shares declined 1.3%, with shares in technology firms such as semiconductor manufacturers weakening following their recent strong run as investors took profits.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 22 June 2023.