Global stock markets have had another turbulent week as investors weigh up the potential benefits of lower interest rates against growing signs of weakness in the world economy.
The Bank of England announced its first rate cut in four years, following the lead taken by the European Central Bank in June, while Federal Reserve officials gave their clearest indication yet that rates in the United States are likely to be reduced next month. However, disappointing manufacturing and unemployment data from America, Europe and China led to losses later in the week. Mixed corporate earnings reports for the second quarter of the year added to the uncertainty, while growing fears of an escalation of conflict in the Middle East drove fresh increases in oil prices.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.6% down for the week so far, with the S&P 500 falling 0.2%. Share prices in the US recovered a significant proportion of their recent losses early in the week after official data showed the American economy had expanded more quickly than expected in the three months from April to June, and Federal Reserve chair Jerome Powell signalled a likely interest-rate cut in September. However, figures published on Thursday showed that manufacturing output had started to slow while jobless claims had risen to an 11-month high. Investors are now questioning whether the Fed has been too slow to loosen monetary policy.
UK
In the UK, the FTSE 100 closed on Thursday level for the week so far after the BoE’s Monetary Policy Committee narrowly voted in favour of cutting the base rate to 5%. Positive earnings reports as well as rising oil and commodity prices helped to support London-listed energy and mining firms, but economic data in Britain was mixed. Figures from the retail sector highlighted ongoing struggles on the high street, although there were signs of further recovery among manufacturers. Chancellor of the Exchequer Rachel Reeves said the new Labour government would have no choice but to increase taxes due to the parlous state of the UK’s public finances, with analysts speculating that the rate of capital gains tax could be raised in the autumn.
Europe
In Frankfurt, the DAX index ended Thursday’s session down 1.8% for the week, while France’s CAC 40 fell 2.0%. European stocks declined following data that showed inflation in the eurozone had unexpectedly risen in July, with the rate returning to 2.6% following June’s 2.5% figure. As a result, investors are now concerned the European Central Bank (ECB) may be unwilling to cut rates at its September meeting. There was more positive news in the form of higher-than-expected eurozone gross domestic product (GDP) growth of 0.3% in the second quarter of the year. However, this was overshadowed to some extent by a downturn in the German economy, with weakness in both the manufacturing and construction sectors.
Asia
In Asia, the Hang Seng index in Hong Kong gained 1.7% on hopes that the Chinese government may be forced to implement new stimulus measures following the latest batch of disappointing economic data. Figures published on Wednesday showed that factory output in China had fallen to a five-month low. Japan’s Nikkei 225 index of leading shares, meanwhile, advanced 1.2%. The Bank of Japan increased interest rates on Wednesday for only the second time since 2007 as policymakers attempted to tackle rising wages and service-sector inflation, while also shoring up the yen.
July 26 | August 1 | Change (%) | |
|---|---|---|---|
FTSE 100 | 8285.7 | 8283.4 | 0.0 |
FTSE 250 | 21356.3 | 21362.7 | 0.0 |
S&P 500 | 5459.1 | 5446.7 | -0.2 |
Dow Jones | 40589.3 | 40348.0 | -0.6 |
DAX | 18417.6 | 18083.1 | -1.8 |
CAC 40 | 7517.7 | 7370.5 | -2.0 |
ACWI | 803.5 | 803.0 | -0.1 |
Hong Kong Hang Seng | 17021.3 | 17305.0 | 1.7 |
Nikkei 225 | 37667.4 | 38126.3 | 1.2 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 1 August 2024.
