Stock markets around the world have struggled to gain momentum this week with mixed economic data and renewed inflation fears acting to limit gains.
Prices on both side of the Atlantic continue to surge as economies bounce back from the pandemic-driven downturn. This situation is being exacerbated by ongoing global supply-chain problems, which means manufacturers are facing sharply rising costs – and passing them on to their customers.
While central banks have to date expressed the view that any increase in inflation is likely to be transitory, there appears to be increasing pressure for them to act – for example, by increasing interest rates sooner than planned, or by scaling back the market stimulus measures introduced at the start of the Covid-19 crisis.
New data from China helped to ease fears that growth in the world’s second-largest economy was stalling after recent setbacks, while new unemployment claims in the United States have fallen to their lowest level since the pandemic took hold in March 2020. But the latest monthly inflation figures in both the US and UK have highlighted the risks that are likely to be linked to rapidly expanding economies.
The US
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.3% up for the week so far, with the S&P 500 falling back 0.2%.
Yields on government bonds continue to decline, reflecting lower interest-rate expectations for the years ahead. Despite the gloomier economic picture, a fall in yields is better news for technology businesses as it makes the value of their future revenues more attractive in present terms.
The UK & Europe
In the UK, the FTSE 100 ended Thursday 1.5% lower for the week, dragged down on Thursday by comments from two members of the Bank of England’s Monetary Policy Committee suggesting that rising inflation in Britain could lead to an early unravelling of stimulus measures.
On Tuesday, the Office for National Statistics reported that prices had risen by 2.5% in June – above analysts’ expectations and the highest level since 2018. Property values in the UK, meanwhile, have increased by 10% over the last 12 months. Meanwhile, financial regulators in Britain have warned this week that business insolvencies could rise later in the year as government support measures such as the furlough scheme are withdrawn.
The value of UK banks was boosted by the Bank of England’s decision to lift the limits on dividend payments to shareholders that were imposed early last year as a condition of receiving state support. But travel companies had another lacklustre week as rising coronavirus cases in the UK – and the government’s confirmation that it would press on with full reopening of the economy next week – raised fears that international travel to and from Britain this summer was likely to remain subject to tight restrictions.
In Frankfurt, the DAX index ended Thursday’s session down 0.4% for the week, while France’s CAC 40 lost 0.6%. Sentiment in the eurozone is starting to worsen as fears over the spread of the Delta coronavirus variant grow.
July 9 | July 15 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7121.9 | 7012.0 | -1.5 |
FTSE All-share | 4069.8 | 4005.8 | -1.6 |
S&P 500 | 4369.6 | 4360.0 | -0.2 |
Dow Jones | 34870.2 | 34987.0 | 0.3 |
DAX | 15687.9 | 15629.7 | -0.4 |
CAC 40 | 6529.4 | 6493.4 | -0.6 |
ACWI | 723.6 | 723.7 | 0.0 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 15/7/2021.
