Global stock markets had a volatile week as investors struggle to work out exactly when central banks will start cutting interest rates.
An unexpected rise in inflation in the United States, announced on Thursday, appeared to throw a spanner in the works. However, by close of trading, Wall Street had apparently reached the conclusion that December’s slight uptick in the Consumer Price Index was nothing more than a blip, with markets still expecting the Federal Reserve to cut rates at some point in the current quarter. Further declines in oil prices at the start of the week helped ease inflationary pressures, although investors remain concerned about the impact of ongoing attacks on commercial shipping in the Red Sea. One report said the crisis had already led to a 1.3% reduction in global trade.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.7% up for the week so far, with the S&P 500 gaining 1.8%. US markets enjoyed positive sessions on Monday and Wednesday as hopes of imminent rate cuts rose, with technology stocks making particularly strong gains. Although both indexes’ initial reaction to December’s inflation reading was sharply negatively, subsequent falls in bond yields helped calm nerves. Separate data early in the week indicated that consumers’ inflation expectations have eased further.
UK
In the UK, the FTSE 100 closed on Thursday 1.5% down for the week so far, with Monday’s 4% fall in crude values – sparked by Saudi Arabia’s decision to cut export prices – weighing on the index’s major energy stocks. There were renewed signs of weakness in the British employment market, with a large recruitment firm warning of a slowdown in hiring. But analysts said the UK was on course to bring inflation down below its 2% target in the first half of the year, and sentiment was further boosted by relatively upbeat trading statements from construction sector firms.
Europe
In Frankfurt, the DAX index ended Thursday’s session down 0.3% for the week, while France’s CAC 40 lost 0.4%. Investors welcomed the news that unemployment in the eurozone had fallen to its lowest ever level, but economic news elsewhere was more downbeat. Industrial output in Germany was weaker than expected in November, while sentiment among the country’s construction firms has also fallen. A senior European Central Bank official warned that the euro area may already be in recession, although this could increase the chances of the bank making early rate cuts this year.
Asia
In Asia, the Hang Seng index in Hong Kong dipped 1.4%, with its recent run of losses finally ended by a positive session on Thursday as investors started to hunt for bargains. The earnings outlook for China’s biggest businesses was downgraded by a major bank on Wednesday, although markets welcomed the move by regulators to ease some trading restrictions. Japan’s Nikkei 225 index of leading shares, meanwhile, surged 5% to reach its highest level since 1990. Weak wage data and a drop in household spending appeared to have reduced the chances of a Bank of Japan interest rate hike. This fed through into a weaker yen, which has in turn driven up the values of Tokyo’s multinational businesses.
January 5 | January 11 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7689.6 | 7576.6 | -1.5 |
FTSE 250 | 19210.4 | 19107.9 | -0.5 |
S&P 500 | 4697.2 | 4780.2 | 1.8 |
Dow Jones | 37466.1 | 37711.0 | 0.7 |
DAX | 16594.2 | 16547.0 | -0.3 |
CAC 40 | 7420.7 | 7387.6 | -0.4 |
ACWI | 715.4 | 723.0 | 1.1 |
Hong Kong Hang Seng | 16535.3 | 16302.0 | -1.4 |
Nikkei 225 | 33377.4 | 35049.9 | 5.0 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 11 January 2024.
