Global stock markets suffered heavy losses this week as concerns about the health of the US economy re-emerged.
There was a partial repeat of the early-August sell-off, which was likewise sparked by disappointing data from the American manufacturing sector and jobs market. While a slowdown in factory activity and hiring rates perhaps should not come as a surprise given the tight monetary policy of the past two years, the resilience of the US economy for much of the period appears to have lulled investors into a false sense of security. The question is no longer whether the Federal Reserve will cut rates later this month, but by how much: markets now believe there is a roughly even chance of a 0.5% reduction rather than the 0.25% previously forecast.
United States
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 1.9% down for the week so far, with the S&P 500 slumping 2.6%. Technology stocks were among those hit hardest by the economic gloom, and the tech-heavy Nasdaq index fell even more sharply. Declines were initially caused by a survey that showed a fresh contraction in manufacturing activity, while separate reports showed a drop in new job openings and a rise in redundancies. There was a short-lived recovery on Thursday following the publication of statistics that highlighted further growth in the services sector in August. However, Friday’s non-farm payroll data – the most authoritative indicator of employment market health – is likely to set the tone for next week.
UK
In the UK, the FTSE 100 closed on Thursday 1.6% down for the week so far following falls in the US. Further weakness in oil prices also hit London’s major energy companies. The prospect of lacklustre growth in the US, Europe and China weighed on crude, as did signs that major oil-exporting countries were considering an end to current production restrictions later in the year. There was some positive economic news, with August confirmed to be the strongest month for factory output in two years, and signs of further growth in the housing sector. Press reports suggested that the Labour government plans to scrap the British ISA, which was announced by the Conservatives in March. The ISA would have given investors an additional tax-free allowance to be used to buy shares in London-listed companies.
Europe
In Frankfurt, the DAX index ended Thursday’s session down 1.6% for the week, while France’s CAC 40 lost 2.6%. Data published during the week continued to paint a gloomy picture for the eurozone, with weakness in France and Germany leading to a contraction in manufacturing in August. Shares in luxury goods firms fell due to concerns about consumer spending in Asia, and one of Germany’s largest motor manufacturers unveiled plans to reduce the size of its operations and workforce. There were also worrying signs of increasing price pressures on businesses. The return of inflation could force the European Central Bank to pause its programme of interest rate cuts.
Asia
In Asia, the Hang Seng index in Hong Kong fell 3% after figures published at the start of the week highlighted the ongoing challenges faced by China’s manufacturers. There were calls for the government to provide additional stimulus measures, in the household sector in particular. Japan’s Nikkei 225 index of leading shares, meanwhile, dropped 5.2% following falls in US technology stocks and growing expectations of another Bank of Japan interest rate rise. The prospect of higher domestic rates alongside expectations of sharp cuts in the US have resulted in a stronger yen, which has weighed on share prices in Tokyo.
August 30 | September 5 | Change (%) | |
|---|---|---|---|
FTSE 100 | 8376.6 | 8241.7 | -1.6 |
FTSE 250 | 21086.5 | 21086.5 | -1.5 |
S&P 500 | 5648.4 | 5503.4 | -2.6 |
Dow Jones | 41563.1 | 40755.8 | -1.9 |
DAX | 18906.9 | 18595.5 | -1.6 |
CAC 40 | 7631.0 | 7432.0 | -2.6 |
ACWI | 833.7 | 812.7 | -2.5 |
Hong Kong Hang Seng | 17989.1 | 17444.3 | -3.0 |
Nikkei 225 | 38647.8 | 36657.1 | -5.2 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, data as at 5 September 2024.
