Global stock markets have endured another highly volatile week as optimism over the post-pandemic reopening of economies around the world has been tempered by ongoing inflation concerns.
In Europe and the United States, major indices ended Thursday’s session in the red following steep losses during the course of trading on Wednesday. The past few days have been marked by sharp swings in the value of numerous cryptocurrencies, with volatility in the likes of Bitcoin feeding through into mainstream markets.
Cryptocurrencies have enjoyed a surge in popularity in recent months, and a number of institutional investors and banks have taken steps to include them in their portfolios. However, many analysts have warned that such investments carry a huge level of risk – and that we may be in the midst of a crypto bubble.
This week’s cryptocurrency falls were sparked by fears that higher inflation could lead to a tightening of monetary policy and an end to the stimulus measures used by central banks. If this extra liquidity dries up, there is likely to be less spare money to invest in risk assets, and prices could fall.
But cryptocurrencies face other threats as well: it was reported this week that the Chinese government is planning a crackdown on this kind of investment, while other central banks have recently issued warnings on similar lines.
Meanwhile, the carbon footprint of Bitcoin generation and the fact it has been used as the payment method in a number of recent online ransomware attacks have also put crypto in regulators’ sights.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.8% down for the week so far, with the S&P 500 faring slightly better in losing 0.3%. Economic data from the reopening of the US economy continues to provide good news for investors, with the weekly increase in new unemployment claims falling to its lowest level since the pandemic began last year.
Inflation concerns earlier in the week saw sharp falls for a number of technology businesses in particular, with Tesla – a major holder and proponent of Bitcoin – losing 3% in Wednesday’s session. However, Thursday saw a bounce back for the tech-heavy Nasdaq index after the Federal Reserve reiterated its “wait and see” stance on monetary policy.
The UK & Europe
In the UK, the FTSE 100 ended Thursday 0.3% down for the week as concerns over the spread of the Indian Covid-19 variant – and the possibility it could disrupt reopening plans – continued. Travel and hospitality firms incurred losses at the start of the week as a result of the ongoing uncertainty, and amid signs the European Union may be forced to restrict travel from Britain this summer.
The UK economy appears to be on course for a strong recovery, with unemployment levels falling faster than expected – but inflation in April doubled to 1.5%.
In Frankfurt, the DAX index ended Thursday’s session down 0.3% for the week, while France’s CAC 40 lost 0.8%. Eurozone inflation also increased last month, but the consensus view is that the European Central Bank does not yet need to take any steps to tighten policy.
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 20/5/2021.