Global stock markets drifted lower this week as investors await signs from central banks of imminent changes to monetary policy.
While last month’s gains were largely driven by hopes of interest rate cuts in the early months of 2024, markets have become more nervous – although more clarity is expected next week after the US Federal Reserve, the European Central Bank (ECB) and the Bank of England all meet to assess the economic situation.
While analysts do not forecast rate changes in any direction at this point, policymakers are expected to provide further clues as to the likely path for rates over the next 12 months. There are nagging fears, however, that rates could be maintained at their current high levels for longer than anticipated if central banks believe inflation has not yet been brought under control.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.4% down for the week so far, with the S&P 500 dipping 0.2%. As well as the Fed decision, investors are eagerly awaiting Friday’s employment data: a weakening jobs market will make early rate cuts more likely given the Fed’s desire to engineer a “soft landing” following recent economic turbulence. There are already signs that the US economy’s longstanding resilience is starting to be tested, with a drop in factory orders reported in November and a steeper decline in consumer confidence than expected. However, technology stocks managed to advance after the latest developments in artificial intelligence (AI) boosted sentiment in the sector.
UK
In the UK, the FTSE 100 closed on Thursday 0.2% down for the week so far, with ongoing weakness in oil and, in particular, commodity prices holding the index back. Britain’s construction sector continues to struggle, with homebuilding activity reported to have declined to levels not seen since the depths of the global financial crisis in 2009. There was some positive news for carmakers after European Union officials agreed to delay the introduction of strict rules on electric vehicle production. These had been expected to result in significant tariffs on exports. Meanwhile, the UK’s service sector returned to growth in November, although businesses warned of increasing pressure from high borrowing costs.
Europe
In Frankfurt, the DAX index ended Thursday’s session up 2.4% for the week, while France’s CAC 40 gained 1%. Fresh data showing economic weakness in Germany – with trade performance deteriorating in October and factory orders declining more recently – did little to dent confidence as the DAX closed at a record high on Wednesday. Investors are more focused on the prospect of the ECB cutting rates early in the new year now that inflation appears to be reverting to normal levels.
Asia
In Asia, the Hang Seng index in Hong Kong dipped 2.9%, with stocks falling back early in the week after credit agency Moody’s cut China’s rating in the wake of recent concerns about the stability of the country’s financial system. Share prices on the mainland suffered to an even greater degree, declining to pre-pandemic levels, while the latest subpar economic data did little to improve investors’ moods. Japan’s Nikkei 225 index of leading shares, meanwhile, lost 1.7% as strength in the yen held back gains among the country’s major international businesses. The currency rose as speculation grew that the Bank of Japan could be on the verge of raising interest rates. There were gains among Japanese chipmakers, however, on news of an AI breakthrough in the US.
December 1 | December 7 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7529.4 | 7513.7 | -0.2 |
FTSE 250 | 18408.7 | 18618.7 | 1.1 |
S&P 500 | 4594.6 | 4585.6 | -0.2 |
Dow Jones | 36245.5 | 36117.4 | -0.4 |
DAX | 16397.5 | 16629.0 | 1.4 |
CAC 40 | 7346.2 | 7428.5 | 1.1 |
ACWI | 698.5 | 696.0 | -0.4 |
Hong Kong Hang Seng | 16830.3 | 16345.9 | -2.9 |
Nikkei 225 | 33431.5 | 32858.3 | -1.7 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 7 December 2023.
