Global Equities Trade Anxiously Over Economic Outlook

The fact that the world economy continues to show signs of strength is exactly what is causing concerns about economic weakness and adds a touch of irony to the situation. The reality is that the Federal Reserve’s fight against inflation is not over, as evidenced by the current elevated wage growth, strong job creation and resilient consumer spending trends, all of which suggests that this is not entirely unjustified. A decline in the economy would be the unintended consequence of further aggressive rate hikes.

Having said that, it should not be forgotten that the markets have recently put in a strong performance, with stocks rising almost 11 per cent over the previous two months and bonds recovering as interest rates have fallen sharply from their peak in October. The normally defensive healthcare, consumer staples and utility sectors did best on the S and P 500. International oil prices plunged to their lowest level since January, sending energy shares substantially lower.

Meanwhile, communication services’ equities suffered significantly from Alphabet’s weakening, the parent company of Google. Financials also did poorly because several bank CEOs shared gloomy predictions. As central banks tighten the monetary policy to combat inflation, shares in Europe slumped in the past fortnight as recession fears returned. The STOXX Europe 600 index for Europe finished the week 0.94 per cent lower. Other important indices also fell. The FTSE MIB index in Italy slipped by 1.40 per cent, the DAX in Germany fell 1.09 per cent, the CAC 40 in France was down 0.96 per cent and the FTSE 100 in the UK fell 1.05 per cent.

In the third quarter, revised data revealed that the euro zone economy grew by 0.3 per cent sequentially, up from a preliminary estimate of 0.2 per cent, helped by rises in consumer and business investment. Throughout the fortnight, Japan’s major markets posted modest gains with the Nikkei 225 climbing 0.44 per cent and the TOPIX rising 0.39 per cent. Data indicating that Japan’s economy shrank less than initially projected in the third quarter of 2022 helped investors’ confidence in certain ways but the uncertainty regarding the direction of the US’ monetary policy restrained market gains. 

Despite an anticipated spike in infections in the following months, Chinese stock markets increased as a result of Beijing’s swift relaxation of the corona virus pandemic restrictions, which improved investor morale. The blue-chip CSI 300 increased by 3.3 per cent, posting the largest weekly gain since early November, while the Shanghai Composite rose by 1.6 per cent. A ten-point guidance for their new virus preventive and control methods was released by Chinese officials. The State Council’s new policies include a programme to immunise seniors and lowering mass testing requirements in several localities, as well as home quarantining for those with minor symptoms.

"Despite an anticipated spike in infections in the following months, Chinese stock markets surged as a result of Beijing’s swift relaxation of the coronavirus pandemic restrictions, which improved investor morale."