Concerns about rising interest rates – and their likely impact on borrowing costs and economic growth – have once again been to the fore this week, pushing stock markets in Europe and the US lower.
The European Central Bank (ECB) confirmed on Thursday that it would raise rates for the first time in 11 years when it meets next month as it attempts to bring rampant eurozone inflation under control. The ECB is also planning to bring its asset-purchase programme to a halt. This has raised fears that some heavily indebted European Union member states such as Italy, Spain and Greece could see their borrowing costs rise more rapidly than in, say, Germany or France. This disparity could act as an additional brake on eurozone growth while also making monetary policy more challenging to formulate.
There were few signs this week that inflationary pressures are likely to ease in the weeks ahead: the price of oil, for example, remains stubbornly high thanks in part to an easing of Covid-19 restrictions in China and the likelihood that the country’s industrial production will start to ramp up in the coming weeks. The World Bank cited sharp price rises as the main reason for it downgrading its global growth forecast for 2022, which was cut to 2.9% from 4.1%. The organisation added that rising interest rates coupled with soaring prices were likely to create a significant risk of stagflation.
US markets
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 9 June 1.9% down for the week so far, with the S&P 500 losing 2.2%. Following gains at the start of the week, share prices in the US fell on Wednesday and Thursday as investors anticipated yet more worrying inflation data at the end of the week.
Europe
In the UK, the FTSE 100 closed on Thursday 0.7% down for the week, with the index’s numerous defensive stocks, such as energy and mining companies, helping to limit losses. The London market shrugged off Boris Johnson’s latest political difficulties – the prime minister survived a vote of no-confidence among Tory MPs on Monday – but new data from the service and construction sectors showed a worrying trend to lower growth and rising prices.
In Frankfurt, the DAX index ended Thursday’s session down 1.8% for the week, while France’s CAC 40 lost 2%. Shares across the eurozone dipped following the ECB’s interest-rate announcement and signs of rising bond yields in southern Europe.
Asia
In Asia, the Hang Seng index in Hong Kong rose 3.7% with investors welcoming news of a lifting of lockdown restrictions in Shanghai and elsewhere. Chinese markets also benefited from the prospect of lower tariffs on exports to the US.
Japan’s Nikkei 225 index of leading shares ended Thursday 1.7% higher following positive news from China and a weakening of the yen, which has improved the outlook for Japanese exporters.
June 3 | June 9 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7529.3 | 7476.2 | -0.7 |
FTSE All-share | 4162.0 | 4132.2 | -0.7 |
S&P 500 | 4108.5 | 4017.8 | -2.2 |
Dow Jones | 32899.7 | 32272.8 | -1.8 |
DAX | 14460.1 | 14198.8 | -1.8 |
CAC 40 | 6485.3 | 6385.5 | -2.0 |
ACWI | 649.2 | 637.8 | -1.8 |
Hong Kong Hang Seng | 21082.1 | 28246.5 | 3.7 |
Nikkei 225 | 27761.6 | 28246.5 | 1.7 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 9 June 2022.
