Stock markets around the world maintained their recent momentum and made steady gains this week, despite a number of headwinds. A resolution to the UK’s political turmoil has managed to calm bond markets and help the pound recover from recent lows, while solid third-quarter company earnings reports have provided some encouragement to investors.
But central banks remain committed to raising interest rates even further as they strive to bring inflation under control. On Thursday, the European Central Bank (ECB) hiked its benchmark rate by 75 basis points following increases in July and September, while the US Federal Reserve is expected to follow suit next week. This is despite signs that the eurozone and US economies are starting to falter.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 3.1% up for the week so far, with the S&P 500 gaining 1.5%. The latest set of company earnings statements painted a picture of a two-speed economy, where traditional defensive businesses such as banks and consumer goods manufacturers continue to perform well but technology companies are struggling in the face of declining advertising and subscription revenues. However, news that mortgage rates in the US are now at their highest level in more than two decades could be a sign that household budgets may come under even greater pressure in the months ahead.
In the UK, the FTSE 100 closed on Thursday 1.5% up for the week, with gains limited by a resurgent pound – rises in the value of sterling typically have a dampening effect on the overseas revenues generated by London-listed multinationals. A swift end to the latest Conservative Party leadership contest saw Rishi Sunak chosen as prime minister effectively unopposed. Following Liz Truss’s disastrous foray into fiscal policy, Sunak is seen as a safe pair of hands and, like the pound, government bond prices reacted favourably to his appointment.
In Frankfurt, the DAX index ended Thursday’s session up 3.8% for the week, while France’s CAC 40 gained 3.5%. The ECB’s rate increase came as no surprise, while news that eurozone business activity had fallen at its fastest rate since 2020 also did little to darken investors’ mood. Signs that gas prices may not be as high as previously feared over the coming winter were a particular source of optimism in European markets.
In Asia, the Hang Seng index in Hong Kong slumped again, losing 4.8% by Thursday’s close. During the recent Communist Party congress it was made clear that the Chinese government would maintain its current zero-Covid policy despite its impact on economic activity. Meanwhile, the country’s growth targets for 2022 have been downgraded by officials.
Japan’s Nikkei 225 index of leading shares, meanwhile, gained 1.7% following advances on US markets and the Bank of Japan’s reaffirmed commitment to looser monetary policy.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 27 October 2022.