Stock markets around the world made solid progress this week despite fresh concerns around economic growth and the potential for further interest rate rises
A further decline in the rate of inflation in the United States initially appeared to be cause for celebration. But the data showed that prices for staples such as housing, food and energy had not slowed as quickly as expected. Buoyant retail spending in the US means the Federal Reserve could decide to prolong its programme of monetary policy tightening well into 2023. Meanwhile, strong fourth-quarter company earnings reports, in Europe in particular, continue to support market gains.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.5% down for the week so far, with the S&P 500 closing level with last week’s finish. Economic data again painted a mixed picture, with strong retail sales contrasting with a sharp downturn in the manufacturing sector. Uncertainty about the Fed’s next move on interest rates persists, although this week has seen another rise in Treasury rates which reflect the market’s medium- and long-term interest expectations.
In the UK, the FTSE 100 closed on Thursday 1.7% up for the week so far, having finally breached the 8,000-point barrier. This week’s gains were given considerable support by a drop in the value of the pound as interest rate expectations in the US and UK diverged further. With the weak British economy giving the Bank of England less scope to raise rates than its counterpart in Washington DC, sterling has fallen back from recent highs – boosting the international earnings of UK blue-chips in the process. The inflation rate in Britain dipped by 0.6% in January, a larger decline than expected, and positive trading reports from the travel and commodities sectors also boosted sentiment.
In Frankfurt, the DAX index ended Thursday’s session up 1.5% for the week, while France’s CAC 40 gained 3.3%. Shares in Paris made particularly strong gains and approached an all-time high on prospects for luxury goods makers, which will benefit disproportionately from the reopening of the Chinese market. Solid trading statements from Germany’s industrials sector added to the week’s gains, although the European Central Bank repeated its warning that rate rises were set to continue.
In Asia, the Hang Seng index in Hong Kong dipped 1% as diplomatic tensions between China and the US continued following the recent spy balloon controversy. At the same time, investors remain to be convinced that the Chinese economy will stage a strong and even recovery in 2023 following the lifting of the country’s pandemic-era restrictions. Japan’s Nikkei 225 index of leading shares advanced 0.1%, with weakness in the yen versus the US dollar supporting another positive week. Upbeat earnings reports from motor manufacturers and chipmakers were also welcomed, while a surge in foreign visitors to Japan drove retailers’ shares higher.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 16 February 2023.