Global stock markets have given up some of their recent gains this week due to increasing worries about inflation and declining growth.
The cautious optimism of the past few weeks had been based on hopes that receding inflation would lead to slower interest rate rises. But investors are becoming increasingly worried that wage increases could fuel renewed price rises, forcing central banks to take more concerted action. At the same time there is considerable uncertainty about the medium-term impact of tighter monetary policy, with many analysts now forecasting prolonged recessions in some of the world’s biggest economies.
There was some positive news this week, however, in the shape of an apparent U-turn by Chinese authorities on the country’s zero-Covid policy. After a series of strict recent lockdowns prompted widespread protests, the Beijing government has relaxed its quarantine rules, raising hopes that China’s economy will be able to begin a sustained recovery from the pandemic.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.9% down for the week so far, with the S&P 500 losing 2.7%. Data published at the end of last week showing a spike in average earnings in the US raised fears that the Federal Reserve may need to keep its foot on the accelerator when it meets to set interest rates later in December. At present, the consensus is that the Fed will hike rates by 50 basis points but some economists are now predicting a more substantial increase. A major US investment bank published forecasts suggesting the American economy may enter recession by mid-2023.
In the UK, the FTSE 100 closed on Thursday 1.1% down for the week with latest data highlighting continued weakness in Britain’s construction sector. House prices, meanwhile, fell at their fastest pace in more than a decade in October, another demonstration of the effect of rising interest rates. A series of national rail strikes planned over December are expected to have a significant impact on the UK’s beleaguered hospitality sector, with many companies reportedly cancelling parties over the festive period as a result.
In Frankfurt, the DAX index ended Thursday’s session down 1.8% for the week, while France’s CAC 40 lost 1.4%. A cold snap across Europe put upward pressure on gas prices, prompting fears of renewed inflationary pressures as well as possible energy shortages over the coming months. However, there was positive news in the shape of a reported rise in orders in German factories in October, raising hopes that any eurozone recession could be short-lived.
In Asia, the Hang Seng index in Hong Kong rose 4.1% in another highly volatile week. News of the Chinese government’s rethink of its approach to Covid-19 drove significant gains early in the week. The impact of zero-Covid was laid bare by news that China’s imports and exports had fallen last month at their fastest rate since the start of the pandemic. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced on the China’s reopening before falling back as a result of inflation and interest-rate fears emanating from the US.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 8 December 2022.