Stock markets around the world have extended their September losses as the latest round of interest rate rises appears to have increased the likelihood of a global economic slowdown. While rate hikes from the Federal Reserve in the United States and the Bank of England were far from unexpected, updated forecasts from both central banks have given investors little ground for optimism in the short or even medium term.
A fresh escalation of the crisis in Ukraine also weighed on share prices. The news that the Russian government plans to conscript as many as 300,000 reservists has only increased the likelihood of the conflict continuing into 2023, adding to energy-supply concerns across Europe.
The Fed’s decision to raise rates by 75 basis points (bps) on Wednesday was in line with market expectations following last week’s surprisingly high US inflation reading. Nevertheless, investors reacted with dismay to new guidance from the Fed which suggested that rates will have to increase more steeply this year and next than previously forecasted if price rises are to be brought under control.

US markets

On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2.4% down for the week so far, with the S&P 500 losing 3%. The Fed’s hawkish outlook saw bond yields rise further, with shares in high-growth companies such as technology businesses again suffering disproportionate losses. The news that the average petrol price in America had risen for the first time in more than three months added to fears that additional inflationary pressures could be in the pipeline.

Europe

In the UK, the FTSE 100 closed on Thursday 1.1% down for the week after the Bank of England confirmed its seventh interest-rate rise in less than a year. While the 50bps increase was lower than some economists had forecasted, the Bank’s Monetary Policy Committee warned that the British economy is now officially in recession. Higher interest rates in the UK did little to arrest the decline in sterling: new government plans to reverse tax increases and provide energy-bill relief for businesses raised fears about the state of the public finances, adding to recent pressure on the pound.
In Frankfurt, the DAX index ended Thursday’s session down 1.6% for the week, while France’s CAC 40 slumped 2.6%. Renewed Russian belligerence over the Ukraine conflict was not the only concern for European markets this week. Inflation shows no sign of abating in the eurozone, with factory prices in Germany rising at a record pace in August, while consumer confidence across the euro area has reportedly fallen to a record low.

Asia

In Asia, the Hang Seng index in Hong Kong fell 3.3%, extending this year’s losses and reaching its lowest point in more than a decade. Although the lockdown in Chengdu was lifted this week, investors in China remain deeply concerned about the impact of Beijing’s zero-Covid policy on the country’s economic prosperity. On Wednesday, the Asian Development Bank revised its 2022 growth forecast for China down to 3.3% from 5%. Japan’s Nikkei 225 index of leading shares, meanwhile, lost 1.5% following the Fed rate hike and the news that the Bank of Japan (BoJ) had taken action late in Thursday’s session to shore up the yen. The BoJ had earlier confirmed it was sticking with its recent ultra-low interest-rate policy, news that sent the currency lower.
16 September
22 September
Change (%)
FTSE 100
7236.7
7159.5
-1.1
FTSE All-share
3976.7
3924.9
-1.3
S&P 500
3873.3
3758.0
-3.0
Dow Jones
30822.4
30076.7
-2.4
DAX
12741.3
12531.6
-1.6
CAC 40
6077.3
5918.5
-2.6
ACWI
597.6
579.6
-3.0
Hong Kong Hang Seng
18761.7
18148.0
-3.3
Nikkei 225
27567.7
27153.8
-1.5
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 22 September 2022.