Stock markets around the world extended their recent losses this week after central bankers indicated their current programme of monetary policy tightening would extend well into 2023.
Interest rates in the US, the eurozone and the UK were raised again this week despite recent data showing that inflation may have reached a peak. But policymakers warned that victory in the battle against price rises remained some way off. The US Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) have each taken pains to stress that their hawkish monetary policies will continue until the rate of annual price rises is considerably nearer the 2% target. They point out that the biggest risk to economic growth over the longer term is entrenched inflation. From investors’ point of view, however, this raises the likelihood of a sustained global recession, at least in the short term, as high interest rates dampen economic activity around the world.
A surge in Covid-19 infections in China following authorities’ recent decision to relax their strict lockdown policies added to the week’s negative sentiment as markets worried that the Beijing government could be forced to reimpose restrictions.
US markets
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.8% down for the week so far, with the S&P 500 losing 1%. Technology and other growth stocks rose earlier in the week after latest figures showed a second consecutive monthly decline in inflation in the US, while the Fed’s interest rate rise of 50 basis points (bps) on Wednesday was in line with expectations. But US markets fell in the wake of comments from Fed chair, Jerome Powell, which indicated that he and his colleagues would continue to raise rates regardless of the consequences for short-term growth.
Europe
In the UK, the FTSE 100 closed on Thursday 0.7% down for the week after the BoE raised rates by 50pbs, taking the base rate to 3.5% – its highest level since the financial crisis. Latest data showed the British economy had grown faster than expected in October but is expected to have since cooled, not least as the result of a series of nationwide labour disputes involving nurses, rail workers and Royal Mail staff, among others. Annual inflation in November dropped back to 10.7% as rises in the cost of petrol and clothing slowed.
In Frankfurt, the DAX index ended Thursday’s session down 2.7% for the week, while France’s CAC 40 lost 2.3%. European markets were particularly disappointed by an ECB statement indicating that policymakers expect to have to raise interest rates “significantly further” in order to bring inflation under control. Factory production across the eurozone fell sharply in October as the result of high energy prices and declining demand. Cold weather across Europe, meanwhile, drove gas prices higher again, potentially adding to inflationary pressures.
Asia
In Asia, the Hang Seng index in Hong Kong fell 2.7% after a surge in Covid-19 infections was reported in Beijing and other major cities. This raises questions about the Chinese government’s recent decision to lift its most severe pandemic-era restrictions. Japan’s Nikkei 225 index of leading shares had risen 0.5% by Thursday’s close following positive inflation news from the US. Stocks in Tokyo were expected to follow Wall Street downwards on Friday, however.
8 December | 15 December | Change (%) | |
|---|---|---|---|
FTSE 100 | 7476.6 | 7426.2 | -0.7 |
FTSE All-Share | 4087.4 | 4063.6 | -0.6 |
S&P 500 | 3934.4 | 3895.8 | -1.0 |
Dow Jones | 33476.5 | 33202.2 | -0.8 |
DAX | 14370.7 | 13986.2 | -2.7 |
CAC 40 | 6677.6 | 6522.8 | -2.3 |
ACWI | 619.4 | 612.7 | -1.1 |
Hong Kong Hang Seng | 19900.9 | 19368.6 | -2.7 |
Nikkei 225 | 27901.0 | 28051.7 | 0.5 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 15 December 2022.
