Global stock markets made solid gains this week after policymakers in the United States decided to temporarily halt their recent run of interest rate rises, and China’s government took steps to boost its flagging economy
The Federal Reserve’s decision on Wednesday to press pause on its programme of monetary policy tightening was not unexpected given the fall in the US inflation reported earlier in the week. But while officials were keen to stress that further interest rate hikes remained a possibility in the coming months, investors are increasingly hopeful that the weakening US economy may force the Fed to keep rates at their current level or even start to make cuts before the end of the year.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2.1% up for the week so far, with the S&P 500 gaining 3%. Investors welcomed the news on Tuesday that headline inflation had fallen faster than expected last month. Latest data also showed another rise in unemployment claims as well as a fall in industrial output in May, boosting hopes that there will be no further tightening of monetary policy this year. This speculation drove up the prices of Wall Street’s major technology firms in particular, with these businesses having the most to gain from a fall in interest rates.
In the UK, the FTSE 100 closed on Thursday 0.9% up for the week so far, with gains limited by a rise in the value of sterling against the dollar as interest rate expectations fell in the US. Britain’s energy and mining companies started the week in negative territory as commodities and oil prices fell on concerns about global growth. However, these losses were reversed to some extent after the Beijing government unveiled plans to drive output in China. UK GDP was positive in April thanks to resilient consumer spending, although construction sector activity declined. Fears of further interest rate hikes by the Bank of England led to a fresh rise in mortgage rates, with several lenders withdrawing loan products from the market.
In Frankfurt, the DAX index ended Thursday’s session up 2.1% for the week, while France’s CAC 40 gained 1.1%. Stocks across Europe welcomed the news of stimulus measures in China, while business sentiment in Germany was reported to be on the up despite recent economic difficulties. As expected, the European Central Bank increased interest rates on Thursday with President Christine Lagarde indicating at least one more rise was likely over the summer.
In Asia, the Hang Seng index in Hong Kong gained 2.3% after the Chinese government cut a number of key borrowing rates in a bid to drive growth in the struggling economy. China’s recovery following the lifting of pandemic-era restrictions in late 2022 and at the start of this year has been particularly uneven, and policymakers hope that a decrease in borrowing rates will lead to a rise in activity. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 3.8% on the back of the China stimulus, gains on Wall Street and a weakening of the yen, which boosted the value of Tokyo-listed multinationals.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 15 June 2023.