Recovery Delayed As Inflation Strikes Global Equities

The value of the British pound decreased against the dollar, reaching lows last seen in 1985. This downward pressure was caused by worries about an impending recession as well as the possibility that the Bank of England increasing interest rates. As price pressure from raw materials and currency weakening widened, Japan's core consumer inflation accelerated to 2.8 per cent in August, reaching its strongest annual pace in over eight years and exceeding the central bank's 2 per cent target for a fifth straight month.

As concerns about inflation increased, global stocks encountered an abrupt decline with the S&P 500 index experiencing the biggest weekly decline since mid-June 

In the past fortnight, Nasdaq Composite, which is heavily weighted toward technology, fell close to 5.5 per cent, while growth stocks fared the hardest. As shares of Facebook parent Meta Platforms and Google parent Alphabet hit fresh 52-week lows, the S&P 500's fall was led by shares of communication services and information technology companies. Stocks of industrials and materials were also very bad.

The consumer price index (CPI) report published last week came in higher than expected and dashed investors' hopes that the economy had passed 'peak inflation.' For the year that ended in August, headline prices increased by 8.3 per cent, exceeding the consensus estimate of a gain of about 8.1 per cent. The fact that core inflation, which excludes food and energy, increased to 6.3 per cent, its highest level since March, and beyond forecasts for a 6.1 per cent increase, may have been more worrying.

In response to indications of a worsening economic downturn, shares in Europe declined. The STOXX Europe 600 Index for all of Europe finished lower by 2.89 per cent. The DAX index in Germany fell 2.65 per cent, the CAC 40 index in France dropped 2.17 per cent, and the FTSE 100 index in the UK down 1.56 per cent. The FTSE MIB index for Italy ended almost flat.

The value of the British pound decreased against the dollar, reaching lows last seen in 1985. This downward pressure was caused by worries about an impending recession as well as the possibility that the Bank of England increasing interest rates.

The Nikkei 225 index plummeted by 2.29 per cent during the course of the week, while the more inclusive TOPIX index declined by 1.37 per cent. Stock markets in China declined as weak currency and unfavourable real estate data concealed surprisingly positive manufacturing output and retail sales numbers. According to Reuters, both the broad, capitalization-weighted Shanghai Composite Index and the blue chip CSI 300 index, which monitors the top listed companies in Shanghai and Shenzhen, experienced a fall of 4.2 per cent and 3.9 per cent, respectively, this week.

In an effort to lessen selling pressure on the yuan brought on by a deepening policy divergence with the Federal Reserve, the People's Bank of China drained liquidity from the banking sector for the second consecutive month while maintaining interest rates at their current levels.