Global stock markets have clawed back some of their recent losses as falls in commodity prices and a resumption of Russian gas supplies to Europe combined to reduce the threat of runaway inflation.
On Thursday, the European Central Bank (ECB) became the latest institution to raise interest rates faster than analysts expected. In this case, a 50 basis point increase – the first hike in more than a decade – was seen by investors as a necessary and welcome move in the bank’s attempts to bring price rises in the eurozone under control. The decision was expected to help the euro recover lost ground against the dollar and while this might make European exports less competitive on the global stage, it should also reduce the cost of imports and thus dampen inflationary pressures in the single-currency area.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 21 July 2.4% up for the week so far, with the S&P 500 gaining 3.5% on the back of strong company earnings and bargain-hunting by investors. The American technology sector was boosted by positive second-quarter results from video-streaming service Netflix following a surprise slump in subscriber numbers at the start of the year. However, electric carmaker Tesla suffered from supply-chain problems caused by the Covid-19 shutdown at the firm’s Shanghai manufacturing plant in the spring.
In the UK, the FTSE 100 closed on Thursday 1.6% up for the week, with gains limited to some extent by falls in commodity and energy prices. While inflation in Britain rose to a 40-year high of 9.4% in June, data from the jobs market suggested that pressures from wages may be starting to recede.
In Frankfurt, the DAX index ended Thursday’s session up 3% for the week, while France’s CAC 40 gained 2.7%. European markets were cheered by news that the Nord Stream 1 gas pipeline from Russia had resumed operation following routine maintenance earlier in the summer, albeit at slightly reduced levels. Investors had been concerned that the Russian government would halt gas supplies to the European Union in response to sanctions imposed following its invasion of Ukraine in February. The resumption of gas exports gives major EU economies the chance to replenish supplies ahead of what is likely to be a highly challenging winter in the energy market.
In Asia, the Hang Seng index in Hong Kong rose 1.4% with solid gains for China’s technology sector following news that the Beijing government had fined ride-sharing service Didi for data-protection failures. The penalty suggested the recent crackdown on Chinese tech firms – in particular those with significant international presences – could be coming to an end without more drastic sanctions being imposed.
Japan’s Nikkei 225 index of leading shares, meanwhile, gained 3.8% for the week on the back of strong gains in the US and the Bank of Japan’s decision to keep interest rates unchanged.
Hong Kong Hang Seng
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 22 July 2022.