Global stock markets have started the new year in a nervous mood due to rising tensions in the Middle East and concerns that central bank interest rate cuts could be delayed.
Attacks on commercial shipping in the Red Sea have affected international supply chains and led to fresh rises in the price of oil and other commodities. Investors fear that the potentially inflationary impact of these developments could persuade the US Federal Reserve and its counterparts in Europe to maintain monetary policy at its currently tight level for longer. Bond yields, which reflect the market’s interest rate expectations, have risen in recent days as a result.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.7% down for the week so far, with the S&P 500 losing 1.7%. Technology companies and other interest rate sensitive stocks suffered to the greatest extent, with one major electronics company falling sharply on Tuesday following reports of sub-par trading performance. The latest signs of weakness in the American economy included lower-than-expected new job openings and another decline in factory output. However, data published on Thursday indicated the US service sector expanded in December.
UK
In the UK, the FTSE 100 closed on Thursday 0.1% down for the week so far, with concerns about interest rates and the state of the British economy offset by gains among major energy companies as oil prices strengthened. There was some positive news in the shape of falls in mortgage rates and a rise in home-loan approvals in November, while grocery price inflation continues to decline. The UK’s manufacturing sector, however, recorded another month of underperformance.
Europe
In Frankfurt, the DAX index ended Thursday’s session down 0.8% for the week, while France’s CAC 40 lost 1.2%. Rising oil prices and a spell of particularly cold weather across Europe sent gas prices higher this week. Meanwhile, latest figures showed inflation in Germany had risen in December – although this has been largely attributed to the impact of the removal of government subsidies, and as such may not represent genuine cause for concern. Rising unemployment in the eurozone’s largest economy, on the other hand, could signal challenging times ahead.
Asia
In Asia, the Hang Seng index in Hong Kong fell 2.4% as 2023’s poor performance continued into the new year. Official data showed sluggish growth among China’s manufacturers in December while investors remained concerned about a crackdown by the Beijing government on the video game sector. Japan’s Nikkei 225 index of leading shares fell 0.5% with sentiment affected by the recent earthquake and aviation accident. As has been the case elsewhere in the world, Japan’s manufacturing sector recorded a slowdown at the end of last year.
December 29 | January 4 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7733.2 | 7723.1 | -0.1 |
FTSE 250 | 19689.6 | 19372.1 | -1.6 |
S&P 500 | 4769.8 | 4688.7 | -1.7 |
Dow Jones | 37689.5 | 37440.3 | -0.7 |
DAX | 16751.6 | 16617.3 | -0.8 |
CAC 40 | 7543.2 | 7450.6 | -1.2 |
ACWI | 727.0 | 714.1 | -1.8 |
Hong Kong Hang Seng | 17047.4 | 16646.0 | -2.4 |
Nikkei 225 | 33464.2 | 33288.3 | -0.5 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 4 January 2024.
