New concerns about the pace of interest rate rises in the coming months have put a brake on global stock market gains. While share prices once again enjoyed a strong start to the week – with major indices boosted by advances in technology stocks in particular – new inflation data and cautionary comments from central bankers on Thursday saw a significant degree of pessimism return to the markets.
With no monetary policy meetings imminent and a lack of new developments in the Ukraine stand-off, investors spent much of Monday, Tuesday and Wednesday focusing on strong company earnings performance – driving markets in the United States, Europe and Asia back towards the highs seen at the end of 2021.
But this exuberance was curtailed by data from the US on Thursday which showed that inflation had risen faster than expected to 7.5%, its highest level since 1982. Of particular concern was the fact that almost every sector of the American economy is now experiencing significant price rises: a fact that makes a sizeable interest rate rise at the next Federal Reserve meeting in March even more likely.
The US
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.4% up for the week so far, with the S&P 500 just 0.1% ahead. Both indices suffered heavy losses in the latter stages of Thursday’s session after a senior Fed official – James Bullard, president of the Federal Reserve Bank of St. Louis – said the inflation crisis had become so acute that he now supported a full 1% increase in rates in the first half of 20221.
Bullard’s comments came too late in the day to affect markets in the rest of the world, although the US inflation data did have an impact on indices in Europe.
The UK & Europe
In the UK, the FTSE 100 closed on Thursday 2.1% up for the week, having hit its highest level since the pandemic began a day earlier. Strong earnings from energy company BP – underpinned by surging oil prices – helped to drive the FTSE higher on Tuesday, while comments from the Bank of England’s chief economist helped calm investors’ nerves about any sudden withdrawal of stimulus measures.
In Frankfurt, the DAX index ended Thursday’s session up 2.6% for the week, while France’s CAC 40 gained 2.2%. These gains came despite the fact that the European Central Bank is now widely expected to raise interest rates at least once in 2022, while France’s national statistical body downgraded the country’s economic growth forecasts.
Investors did however welcome the European Union’s plan to invest an extra €15 billion in a new “Chips Act”2, designed to increase member states’ capacity for semiconductor development production. The ongoing semiconductor shortage, and the EU’s dependence on producers in the Far East, has put significant constraints on manufacturing growth – in Germany in particular – over the past 12 months.
Asia
In Asia, the Hang Seng index in Hong Kong had risen 1.4% by Thursday’s close, with technology stocks such as Alibaba and Tencent helping to drive the sector higher. Japan’s Nikkei 225 index of leading shares, meanwhile, closed 0.9% ahead on Thursday, consolidating the gains it has made since the end of January on the back of strong corporate earnings.
February 4 | February 10 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7516.4 | 7672.4 | 2.1 |
FTSE All-share | 4208.6 | 4297.0 | 2.1 |
S&P 500 | 4500.5 | 4504.1 | 0.1 |
Dow Jones | 35089.7 | 35241.6 | 0.4 |
DAX | 15099.6 | 15490.4 | 2.6 |
CAC 40 | 6951.4 | 7101.6 | 2.2 |
ACWI | 718.8 | 726.3 | 1.1 |
Hong Kong Hang Seng | 24573.3 | 24924.4 | 1.4 |
Nikkei 225 | 27440.0 | 27696.1 | 0.9 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 10 February 2022.
