Global stock markets have extended their recent gains, thanks to new evidence that inflation is regressing
Recent data from the United States has added weight to the view that higher interest rates are finally managing to curb price rises in the world’s largest economy, and raised hopes that the Federal Reserve – and other central banks – may soon stop tightening monetary policy.
Although the monthly headline US inflation figure for March showed a welcome fall, markets reacted nervously at first because core inflation – which ignores more volatile elements such as fuel and food costs – had increased. However, figures published on Thursday showing a drop in prices paid by businesses helped to calm nerves and drove share prices higher. Despite this optimism, increased headwinds remain. The latest forecasts from the International Monetary Fund (IMF) underlined the high level of uncertainty surrounding global growth predictions in 2023, although the organisation suggested that interest rates would soon start to recede. Geopolitical concerns also weighed on markets, with a series of Chinese military exercises off the coast of Taiwan adding to existing tensions at the start of the week.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.6% up for the week so far, with the S&P 500 rising 1.0%. Technology stocks fared particularly well as yields on US Treasuries fell in response to the upbeat inflation news. High-growth businesses are likely to benefit most from an early halt to the Fed’s interest-rate raising programme. The focus now shifts to the next round of company earnings reports as investors attempt to assess the extent of the economic damage caused by tighter monetary policy and rapidly rising prices.
In the UK, the FTSE 100 closed on Thursday 1.3% up for the week. The IMF said it now expected the British economy to contract by only 0.3% this year compared to the 0.6% decline predicted in January. Conversely, official data revealed that UK GDP unexpectedly flatlined in February, as widespread industrial action took its toll. A rise in mortgage defaults was the latest evidence of the cost-of-living crisis, but UK housebuilders took heart from a new survey indicating a potential rebound in construction activity later in 2023.
In Frankfurt, the DAX index ended Thursday’s session up 0.8% for the week, while France’s CAC 40 gained 2.1% to close at a new record high. Shares in Paris were boosted by the strength in French luxury-goods companies, which have benefited from a resurgence of demand in Asia following China’s reopening. New research showed that investor sentiment in the eurozone had improved in April following a surprise fall last month.
In Asia, the Hang Seng index in Hong Kong edged 0.1% ahead, with gains limited by concerns about Beijing’s belligerence towards Taiwan, alongside losses among technology firms. Several high-profile sales of holdings in major tech businesses harmed sentiment across the wider sector. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 2.3% after five consecutive sessions of gains. Stocks in Tokyo benefited from the news that veteran investor Warren Buffett was reported to be bullish on the market’s growth prospects, as well as from strong earnings reports in the retail sector.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 13 April 2023.