Global stock markets have made solid gains this week after the UK’s short-lived experiment with extreme free-market economics came to a shuddering halt. Following the sacking of chancellor Kwasi Kwarteng at the end of last week, his replacement, Jeremy Hunt, set about undoing the majority of the tax cuts originally announced by Kwarteng in late September. That suite of policy announcements had prompted concerns about rising public debt in Britain and sent UK government bonds into a tailspin – a crisis that was echoed to a lesser extent in fixed-income markets around the world.
While the immediate fallout of the September mini-budget was largely confined to Britain, policymakers in Europe and North America have grown increasingly concerned that their own fiscal and monetary policy changes could, at some point in the future, provoke a similarly negative reaction from the markets. Hunt’s U-turn and the subsequent resignation of prime minister Liz Truss on Thursday following the wholesale rejection of her economic agenda appeared to have restored some semblance of calm in the UK. However, the prospect of another Conservative leadership election – the second in just a few months has the potential to increase investor concerns.
Share prices have also been supported this week by strong third-quarter earnings reports in the financial sector in particular, as well as by new plans set out by the European Union (EU) to manage this winter’s looming energy crisis. EU commissioners have proposed new rules allowing member states to purchase natural gas collectively in order to negotiate cheaper prices.
US markets
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2.4% up for the week so far, with the S&P 500 gaining 2.3%. Strong results from some of America’s biggest banks have helped raise hopes that the forthcoming round of company results statements may paint a brighter picture of the US economy, despite the Federal Reserve’s tightening of monetary policy.
Europe
In the UK, the FTSE 100 closed on Thursday 1.2% up for the week, with both sterling and government bond prices reacting positively to the reversal of Liz Truss’s tax plans and her subsequent resignation. Inflation in Britain rose once more past the 10% mark in September following August’s fall and price rises are expected to accelerate further over the winter despite the government’s plans to subsidise domestic and business energy bills.
In Frankfurt, the DAX index ended Thursday’s session up 2.6% for the week, while France’s CAC 40 advanced at the same rate. The EU’s plans to intervene in the energy markets saw gas prices fall sharply, while data from Germany suggested that more responsible gas and electricity use could drastically cut consumption over the months ahead. However, investor sentiment in the bloc’s biggest economy remains low as recession looms.
Asia
In Asia, the woes of the Hang Seng index in Hong Kong continued: it had lost 2.5% by Thursday’s close to reach a new post-financial crisis low. Leaders in Hong Kong unveiled a new co-investment fund worth almost $4bn in a bid to lure back investors and businesses following the recent relaxation of Covid-19 related restrictions. In Japan, meanwhile, the Nikkei 225 index of leading shares lost 0.3% with investors still concerned about steep interest-rate rises in the US.
October 14 | October 20 | Change (%) | |
|---|---|---|---|
FTSE 100 | 6858.8 | 6943.9 | 1.2 |
FTSE All-share | 3740.9 | 3791.0 | 1.3 |
S&P 500 | 3583.1 | 3791.0 | 2.3 |
Dow Jones | 29634.8 | 30333.6 | 2.4 |
DAX | 12437.8 | 12767.4 | 2.6 |
CAC 40 | 5931.9 | 6086.9 | 2.6 |
ACWI | 552.1 | 563.1 | 2.0 |
Hong Kong Hang Seng | 16698.3 | 16280.2 | -2.5 |
Nikkei 225 | 27090.8 | 27007.0 | -0.3 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 21 October 2022.
