Global stock markets have made solid progress this week despite the latest positive economic data increasing the likelihood of further interest rate rises in the months ahead
Figures published in the United States and Germany over the past few days suggest the tighter monetary policy initially introduced to curb inflation in early 2022 is yet to have a significant negative impact on business activity. For investors, this is a double-edged sword. While continued growth is likely to be beneficial for company earnings, it increases the likelihood of central banks raising rates again over the summer, thus increasing the risk of a slowdown in the world’s largest economies.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.2% up for the week so far, with the S&P 500 close behind with a gain of 1.1%. There were further positive economic figures in the US this week, with strength in orders of durable goods and an unexpected fall in unemployment claims. Federal Reserve officials said this made another interest rate rise this summer very likely. However, markets were buoyed on Thursday by the news that America’s major banks had passed the regulator’s stress tests carried out in response to the financial sector crisis in March and April.
In the UK, the FTSE 100 closed on Thursday just 0.1% up for the week so far, with investors in London concerned about recent developments in Britain’s privatised water industry. On Tuesday, it was reported that a major English water utility was facing severe difficulties due to its high level of debt as borrowing costs were rising. This raised fears that other firms in the sector – as well as the likes of gas and electricity suppliers – could be affected by similar issues. Mortgage rates in the UK, meanwhile, continue to rise, hitting seven-month highs at the start of the week, while latest figures showed a fall in retail sales in June.
In Frankfurt, the DAX index ended Thursday’s session up 0.7% for the week, while France’s CAC 40 gained 2.1%. Officials said the German economy was likely to have returned to growth in the second quarter of 2023, although figures published on Thursday showed that inflation in the country had risen more than expected in June. The French market was lifted by strength in major motor manufacturers, while technology companies across Europe were boosted by hopes of artificial intelligence (AI)-driven growth.
In Asia, the Hang Seng index in Hong Kong rose 0.2%, with the government stating that growth in the second quarter was likely to be an improvement on the first three months of the year. However, investors gave a lukewarm reaction to Beijing’s latest stimulus measures, and there were concerns around the US’s plan to limit the supply of microchips for use in AI applications by Chinese firms. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 1.4% as the weakening yen provided a boost for the country’s exporters, in the motor industry in particular.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 29 June 2023.