Global stock markets have ended a volatile week on the back foot
Investors ponder whether new signs of economic weakness will be sufficient to slow the pace of central bank interest rate rises.
Strong January jobs data published last week in the United States was received badly by markets: it was seen as giving the Federal Reserve licence to continue tightening monetary policy without having to worry excessively about the wider economic consequences. Figures published on Wednesday, however, showed an uptick in weekly unemployment claims, suggesting that rising rates may finally be having an impact on the buoyant US labour market. Nevertheless, Fed chair Jerome Powell re-emphasised his commitment to the ongoing interest rate-rising programme, comments which were echoed by his counterparts in the eurozone and the UK. Investors remain concerned that further rate hikes could not only harm company valuations, but also plunge the US and other major economies into prolonged recessions.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.7% down for the week so far, with the S&P 500 falling 1.3% and giving up a large chunk of last week’s gains. The current round of layoffs among American corporations is the latest sign of economic weakness, although company earnings reports for the final quarter of 2022 have mostly better than expected. Much of the week’s losses came late on Thursday in response to a rise in yields on US Treasuries, a reflection of the market’s expectation of further interest rate increases in the months ahead.
In the UK, the FTSE 100 closed on Thursday 0.1% up for the week so far. Gains were limited by a rebound in the value of sterling in response to the latest hawkish Bank of England comments. Britain’s property market continues to falter, with house price falls in January reported to be more widespread than at any point since the 2009 recession. However, the FTSE 100 was once again buoyed by the record profits reported by one of its leading energy-sector constituents.
In Frankfurt, the DAX index ended Thursday’s session up 0.3% for the week – reaching its highest level in almost 12 months – while France’s CAC 40 fell 0.6%. The German market welcomed inflation figures which indicated a slowing of price rises, thanks in no small part to falling energy costs over the winter so far. A number of major German industrials companies reported strong earnings, further underpinning this week’s gains.
In Asia, the Hang Seng index in Hong Kong dipped 0.2%, recovering some of its losses towards the end of the week. The news that the US had shot down a suspected Chinese spy balloon off the coast of South Carolina last weekend threatened to sour diplomatic ties between the two nations, leading to sharp falls on Chinese stock exchanges on Monday. However, President Biden was reported on Thursday to have said that relations would not necessarily be harmed by the incident. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 0.3% as Tokyo-listed technology firms posted another set of positive trading updates.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 9 February 2023.