Global stock markets have added to their recent gains on renewed hopes that central banks are starting to slow the pace of interest rate rises.
While this week saw each of the US Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) extend their programmes of monetary-policy tightening, investors have largely interpreted the accompanying comments from policymakers as an indication that the war on inflation is being won. At the same time, there are increasing signs that the economic impact of rising rates could turn out to be less severe than previously feared. Markets have also been boosted by yet more positive company earnings reports, in the technology sector in particular.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.2% up for the week so far, with the S&P 500 surging 2.7%. Gains on the latter index and on the tech-heavy Nasdaq were particularly strong thanks to the prospect of interest rates starting to come down later in 2023 as well as encouraging trading statements from major technology companies. The news from the US was not entirely positive, however, with a reported fall in consumer confidence as well as ongoing tightening in the labour market.
In the UK, the FTSE 100 closed on Thursday 0.7% up for the week so far, after the BoE announced the latest in a string of interest rate rises. This takes the base rate to 4%. However, comments from governor Andrew Bailey suggesting the UK was likely to endure a shorter and less severe recession than previously feared provided a significant boost to the market’s more domestically focused companies in particular. Bailey’s analysis was especially welcome after the International Monetary Fund predicted on Monday that Britain would be the only major developed economy to experience negative growth for the whole of 2023. Meanwhile, latest data from S&P Global’s PMI survey indicated a sixth successive monthly contraction for UK manufacturers.
In Frankfurt, the DAX index ended Thursday’s session up 2.4% for the week, while France’s CAC 40 gained 1%. Investors were unsurprised by the ECB’s decision to raise rates by a further 50 basis points and sentiment remained positive despite policymakers’ warnings that further increases were in the pipeline. The news that the eurozone inflation rate had fallen to 8.5% in January from 9.2% at the end of 2022 helped to lift markets, as did figures showing that the downturn in the region’s manufacturing sector had started to slow.
In Asia, the Hang Seng index in Hong Kong dipped 3.2%, giving up some of the gains it had made a week earlier following the new year holiday. Latest data showed that the Hong Kong economy shrank for the fourth quarter in a row in the last three months of last year as the Chinese government’s Covid-related restrictions continued to bite. Investors now await data about the health of the country’s wider economy. Japan’s Nikkei 225 index of leading shares advanced 0.1%, with gains from the prospect of lower rates in the US offset to some extent by the strengthening yen.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 2 February 2023.