The root of this volatility is the interplay between inflation, economic growth and monetary policy. A number of central banks – including the Federal Reserve in the US and the Bank of England – have raised rates this week as expected in their attempts to bring spiralling price increases under control.
After the dust had settled, the Dow Jones Industrial Average ended trading on Thursday 0.1% up for the week so far, with the S&P 500 finishing 0.4% ahead. Both indices had surged by over 3% during Wednesday’s rally, only to see those gains instantly wiped out as a sense of doom returned to the markets, and yields on some government bonds – an indicator of future interest rate expectations – rose to their highest level in almost four years.
After the dust had settled, the Dow Jones Industrial Average ended trading on Thursday 0.1% up for the week so far, with the S&P 500 finishing 0.4% ahead. Both indices had surged by over 3% during Wednesday’s rally, only to see those gains instantly wiped out as a sense of doom returned to the markets, and yields on some government bonds – an indicator of future interest rate expectations – rose to their highest level in almost four years.
In the UK, the FTSE 100 closed on Thursday 0.5% down for the week, following the Bank of England’s latest 0.25% base rate increase. Investors in Britain are particularly concerned about stagflation – a period of high price increases coupled with low growth. BoE governor Andrew Bailey said that the UK’s growth prospects were deteriorating due to inflation and the interest rate policy needed to control it . Sterling fell to its lowest level since mid-2020 on the news.
Meanwhile, new data highlighted the difficulties British manufacturers are facing in expanding their businesses as a result of slowing global demand, international supply-chain problems and the red tape that has been introduced since Brexit.
In Asia, the Hang Seng index in Hong Kong dipped 1.4% as China continues to tackle a number of Omicron outbreaks. On Tuesday, credit rating agency Fitch downgraded its growth forecasts for the Chinese economy citing disruption linked to lockdowns in Shanghai and other major cities.
Japan’s Nikkei 225 index of leading shares, meanwhile, fell 0.1% this week, with rises in the value of the dollar against the yen helping to boost companies’ international earnings and avoid the steep share-price losses seen elsewhere.
