Global stock markets have endured another difficult week as concerns about the pace of interest rate rises resurfaced
US Federal Reserve chair Jerome Powell’s appearance in front of the Senate drove share prices lower on Tuesday after he warned that policymakers may need to raise rates by as much as 50 basis points at their next meeting – more than the market had expected – to deal with persistent inflation.
Sentiment was also negatively affected at the start of the week by lacklustre growth targets set by the Beijing government for the Chinese economy this year. Investors had been banking on China’s post-pandemic reopening to provide a major boost to global growth in 2023, but there remains a significant level of uncertainty around the country’s outlook.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday down 3.4% for the week so far, with the S&P 500 falling 3.1%. Alongside concerns about monetary policy, reports that a major bank for start-up companies was seeking extra cash from shareholders sparked a broader sell-off on Thursday. Investors worry that the rising cost of capital could create wider difficulties for the US financial system. The news overshadowed data from the jobs market which showed a sharp rise in unemployment claims – a development that could ease fears about interest rate hikes.
In the UK, the FTSE 100 closed on Thursday 0.8% down for the week so far. Worries about weaker growth in China weighed heavily on commodity and energy prices, driving shares in London’s mining and oil stocks lower. Latest government figures showed the UK labour market remains tight, which could add to inflationary pressures, while consumer spending dipped in February. On the positive side, construction activity bounced back to some extent last month, while car sales rose by more than a quarter at the start of 2023 compared with 12 months earlier thanks to an easing of supply-chain issues.
In Frankfurt, the DAX index ended Thursday’s session up 0.4% for the week, while France’s CAC 40 fell back 0.4%. As in the UK, eurozone retail sales weakened last month while senior European Central Bank officials echoed the Fed’s warning of further rate hikes, with shares in real estate companies particularly affected. However, in general Europe’s banks continue to perform well thanks to higher interest rates and the relatively resilient household sector.
In Asia, the Hang Seng index in Hong Kong fell 3.1%, with concerns about the weak outlook for the Chinese economy weighing on investor sentiment. Signs that inflation was slowing provided further evidence that growth rates may undershoot expectations. Japan’s Nikkei 225 index of leading shares, meanwhile, continued their strong recent run and advanced 2.5%. Weak GDP data for the final three months of 2022 helped calm fears that the Bank of Japan might alter its current dovish approach to monetary policy, driving share prices in Tokyo back towards last summer’s highs.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 9 March 2023.