Global stock markets have enjoyed a largely positive week despite ongoing concerns about tightening monetary policy in the United States
The latest batch of mixed economic data in the US has, investors fear, provided the Federal Reserve with further justification to continue raising interest rates as it battles to bring inflation under control.
There was good news in the shape of stronger-than-expected industrial production data from China, although geopolitical concerns relating to Beijing’s support for Russia’s invasion of Ukraine – and the possibility of US sanctions as a result – also weighed on sentiment.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.6% up for the week so far, with the S&P 500 0.3% ahead. While rising interest rates and high input prices saw the US manufacturing sector contract for the fourth consecutive month in February, tighter monetary policy appears to have had much less of an impact on the US jobs market. The number of new unemployment claims fell again last week while labour costs rose at a faster pace than previously reported in the final three months of 2022. The prospect of higher wages adding to inflationary pressures could force the Fed to continue raising rates in the months ahead. However, share prices recovered some ground on Thursday after a senior Fed member said he favoured a “slow and steady” approach to future rate hikes.
In the UK, the FTSE 100 closed on Thursday 0.8% up for the week so far, with prices buoyed by the news that prime minister Rishi Sunak had finalised an agreement with European Union leaders regarding the trade status of Northern Ireland. Investors hoped the deal would pave the way for a more pragmatic approach to post-Brexit regulations from the government. Bank of England officials added to the positive mood by suggesting that interest rates in Britain may be near their peak, while the Bank’s chief economist said the UK economy may be in a stronger position than previously thought. However, the housing market continued to decline in February while a rise in the rate of grocery-price inflation added to concerns.
In Frankfurt, the DAX index ended Thursday’s session up 0.8% for the week, while France’s CAC 40 rose by 1.3%. These gains came despite latest data showing inflation remains persistently high in Spain and France in particular. European stocks welcomed the news of growth among China’s manufacturers, and there were positive earnings reports from firms in the consumer staples sector which suggest spending levels could turn out to be relatively resilient in 2023.
In Asia, the Hang Seng index in Hong Kong gained 2.1%, starting the month with solid gains after data showed a resurgent Chinese manufacturing sector benefiting from the ending of Beijing’s zero-Covid policy at the end of 2022. The figures raised hopes that China’s economy could grow at a faster rate than expected this year. Japan’s Nikkei 225 index of leading shares advanced 0.2%, buoyed by China’s industrial production jump but held back by concerns around rising rates in the US and resultant weakness in technology stocks.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 2 March 2023.