The possibility that inflation may have peaked in the world’s largest economy provided a major boost to global stock markets this week. Data published on Wednesday 10 August showed that the annual pace of price rises in the US slowed to 8.5% in July, down from 9.1% the previous month, largely as a result of falling fuel bills.
Investors hope that, as inflation subsides, the Federal Reserve and other central banks will slow the pace of interest rate rises – to the benefit of higher-growth businesses such as technology firms in particular. Fed officials were keen to stress, however, that a single monthly fall in inflation does not mean the US economy is certain to avoid a prolonged downturn. It is entirely possible that recent oil-price falls could be reversed, leading to a fresh increase in inflationary pressures.
There was also positive news on the inflation front from China, where July’s 2.7% rate was below analysts’ expectations as well as Beijing’s own 3% target. But the ongoing energy crisis in Europe, exacerbated by the conflict in Ukraine and sanctions on Russia, continued to worry investors in the eurozone and the UK.
US markets
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.6% up for the week so far, with the S&P 500 gaining 1.5% to reach its highest level since May. Wednesday’s positive inflation figure provided new impetus to the recent rally and gave markets hope that a serious slowdown may be avoided, despite the Fed’s recent rate rises. Strong company earnings figures on Thursday delivered an extra dose of good news, while investors also welcomed data showing that rises in factory-gate prices have started to slow.
Europe
In the UK, the FTSE 100 closed on Thursday 0.4% up for the week, with gains limited by falls in oil and commodity prices, as well as the gloomier outlook for the British economy. The rising price of natural gas and electricity have combined to magnify the UK’s cost-of-living crisis, and the government is facing growing pressure to provide additional support with energy bills during the coming winter while also increasing windfall taxes on suppliers.
In Frankfurt, the DAX index ended Thursday’s session up 0.9% for the week, while France’s CAC 40 gained 1.1%. Drought conditions across Europe’s rivers are hampering efforts to switch to new sources of energy as supplies from Russia dry up, while a heatwave in southern Europe has severely disrupted agricultural production
Asia
In Asia, the Hang Seng index in Hong Kong had dipped 0.6% by Thursday’s close: despite China’s July inflation figure coming in lower than expected, the month-on-month increase raised fears that central bankers may scale back recent stimulus measures. Japan’s Nikkei 225 index of leading shares, meanwhile, lost 1.3% as a result of weakness in the semiconductor sector and a rise in the value of the yen versus the dollar following positive inflation news from the US.
5 August | 11 August | Change (%) | |
|---|---|---|---|
FTSE 100 | 7439.7 | 7465.9 | 0.4 |
FTSE All-share | 4111.5 | 4131.3 | 0.5 |
S&P 500 | 4145.2 | 4207.3 | 1.5 |
Dow Jones | 32803.5 | 33336.7 | 1.6 |
DAX | 13573.9 | 13694.5 | 0.9 |
CAC 40 | 6472.4 | 6544.7 | 1.1 |
ACWI | 639.5 | 651.1 | 1.8 |
Hong Kong Hang Seng | 20201.9 | 20082.4 | -0.6 |
Nikkei 225 | 28175.9 | 27819.3 | -1.3 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 11 August 2022.
