It has been a nervous week for global stock markets as fears about the resilience of the financial sector re-emerged, while central banks in the United States and Europe once again raised interest rates in their battle to bring inflation under control
Investor sentiment has also been hit by the latest signs that the US economy is starting to slow, as well as by the looming prospect of a default by the American government as lawmakers in Congress remain deadlocked over the US debt ceiling.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2.8% lower for the week so far, with the S&P 500 shedding 2.6%. Under other circumstances, a relatively small rate hike by the Federal Reserve and comments from policymakers suggesting the current rate-raising cycle could be at an end might have prompted a more positive reaction from equity markets. However, sentiment in recent days has been dominated by a succession of reports about the vulnerability of several US regional banks, where balance sheets have come under increasing pressure from the tighter monetary policy of the past 12 months.
Though the problems that emerged initially in early March have yet to directly affect any of the country’s major lenders, many investors worry that it is only a matter of time before a household name is drawn into the crisis. The latest economic data suggests the US labour market is finally starting to weaken, and there is no sign of agreement in Washington between Republicans and Democrats on raising the current government debt limit, which is on course to be reached at some point in the summer.
In the UK, the FTSE 100 closed on Thursday 2.1% down for the week so far with share prices in London under pressure from financial services sector anxieties. A further fall in the price of oil and other commodities hit the FTSE’s energy and mining stocks as fears of a global slowdown increased. Despite the recent drop in crude oil values, the UK’s two largest petroleum producers reported bumper profits, sparking demands for a new windfall tax. Meanwhile, there was encouraging news from Britain’s beleaguered property market, with house prices returning to growth in April and mortgage approvals rising to a five-month high.
In Frankfurt, the DAX index ended Thursday’s session down 1.2% for the week, while France’s CAC 40 lost 2%. Shares across the eurozone were held back by banking sector worries, while comments from European Central Bank president, Christine Lagarde, suggested that this week’s 25 basis point rate increase was unlikely to be the year’s last. Lagarde also criticised some of the eurozone’s biggest companies for using high inflation as an excuse to raise prices at an unreasonable pace.
In Asia, the Hang Seng index in Hong Kong gained 0.3%, with investors seemingly less concerned about reports of struggling US banks. China’s financial firms had a strong week in terms of share price performance, while the International Monetary Fund said the country’s return to growth was likely to drive business activity across the whole of Asia throughout 2023. Meanwhile, Japan’s Nikkei 225 index of leading shares advanced 1% following the Bank of Japan’s decision at the end of last week to keep interest rates at their current low level.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 4 May 2023.