Global stock markets had a mixed week as central banks continue to dampen hopes of early interest rate cuts in 2024.
The US Federal Reserve and Bank of England both followed the European Central Bank’s lead and kept rates unchanged, despite signs that inflation has been brought under control. However, policymakers stressed that with economic data showing continued resilience, moves to loosen monetary policy were not necessarily imminent. Investors on both sides of the Atlantic now largely expect cuts to come in May, at the earliest.
There was further evidence of disruption in international supply chains because of the ongoing conflict in the Middle East and attacks on commercial shipping in the Red Sea, while recent figures published in China showed continued weakness in the factory sector.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.1% up for the week so far, with the S&P 500 edging 0.3% ahead. Markets fell sharply on Wednesday after the Fed announced another freeze on interest rates and officials said a cut at its next meeting in March was unlikely. However, both the Dow and the S&P recovered much of these losses during Thursday’s session. The main reason for the Fed’s caution is the strength of the American economy, with data this week showing a rise in consumer confidence and a smaller-than-expected fall in manufacturing output. Among major technology companies, fourth-quarter earnings statements were positive but did not quite match up to investors’ high expectations.
UK
In the UK, the FTSE 100 closed on Thursday 0.2% down for the week so far. The Bank of England’s decision to keep interest rates on hold was widely expected, but governor Andrew Bailey confirmed for the first time that the next move was likely to be downward. Bailey stated that inflation was set to fall to below the 2% target in the coming months before rising again by the end of 2024. The cooling jobs market is helping to reduce upward pressure on prices, with new vacancies falling at the fastest rate since 2020. Meanwhile, the International Monetary Fund downgraded its growth forecasts for the British economy and warned the government against making pre-election tax cuts.
Europe
In Frankfurt, the DAX index ended Thursday’s session down 0.6% for the week, while France’s CAC 40 fell by the same amount. Economic weakness in the eurozone has made the region the current favourite to see early rate cuts this year. Latest figures showed euro area growth had stagnated in the final three months of 2023 and an ECB official said policymakers should start relaxing monetary policy soon. Inflation in the bloc fell to 2.8% in January, while the European Union announced a delay in the introduction of environmental regulations that had sparked recent protests by farmers in France and Germany.
Asia
In Asia, the Hang Seng index in Hong Kong dipped 2.4% with sentiment hit by weak manufacturing sector figures in China. This followed news that a court had ordered the liquidation of one of the country’s largest property developers following its recent financial difficulties. Losses were particularly steep among real estate firms as a result. Japan’s Nikkei 225 index of leading shares advanced 0.7% as the market recorded its strongest January performance in more than a quarter of a century. There are signs, however, that the Japanese economy is starting to slow, with a dip in both construction output and manufacturing growth.
January 26 | February 1 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7635.1 | 7622.2 | -0.2 |
FTSE 250 | 19338.0 | 19131.2 | -1.1 |
S&P 500 | 4891.0 | 4906.2 | 0.3 |
Dow Jones | 38109.4 | 38519.8 | 1.1 |
DAX | 16961.4 | 16859.0 | -0.6 |
CAC 40 | 7634.1 | 7588.8 | -0.6 |
ACWI | 733.8 | 735.7 | 0.3 |
Hong Kong Hang Seng | 15952.2 | 15566.2 | -2.4 |
Nikkei 225 | 35751.1 | 36011.5 | 0.7 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 1 February 2024.
