The threat of tighter monetary policy and the expectation of further negative economic impacts from the war in Ukraine have driven global share prices lower this week.
Stock markets all over the world incurred heavy losses on Tuesday and Wednesday after central bankers in the United States suggested they may withdraw the stimulus measures introduced at the start of the Covid-19 pandemic more rapidly than previously suggested, while also raising interest rates at a faster pace.
Like their counterparts in Europe, the Federal Reserve has concluded that urgent action is likely to be needed to address soaring inflation and rising wage costs. The repercussions of the Ukrainian crisis, added to the prospect of strict lockdowns in China as the country battles with a number of severe Omicron outbreaks, mean that consumers and businesses around the globe can expect prices to continue their upward path for much of the year, creating a major dilemma for the likes of the Fed, the European Central Bank and the Bank of England. By scaling back asset purchases and raising interest rates, policymakers may be able to bring prices under control – but at the same time, such moves could severely threaten economic growth.
The US
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 0.7% down for the week so far, with the S&P 500 losing 1%. Technology stocks in the US were hit particularly hard by concerns about monetary policy, with the tech-heavy Nasdaq index losing more than 2% in Tuesday’s session alone.
New data, meanwhile, showed that American factory orders fell for the first time in nearly a year in February1 – a sign, perhaps, that the US economy could be slowing down.
The UK & Europe
In the UK, the FTSE 100 closed on Thursday 0.2% up for the week, with shares in London once again propped up by strength in the oil price as well as buoyant commodities values. Energy giant Shell said that exiting its Russian operations could cost it as much as £3.8 billion2 – but the firm noted that the high price of oil would be likely to offset a significant chunk of those losses.
European markets once again endured a very challenging week. In Frankfurt, the DAX index ended Thursday’s session down 2.5%, while France’s CAC 40 lost 3.3%.
With increasing evidence of Vladimir Putin’s forces committing war crimes in Ukraine emerging, the European Union is facing growing pressure to block the import of coal and other energy sources from Russia – a move that will have a severe economic impact on the EU. The bank BNP Paribas warned on Wednesday that the eurozone was at risk of entering a recession in 2022, especially if policymakers in Brussels decide to impose a total embargo on Russian oil and gas.
Asia
In Asia, the Hang Seng index in Hong Kong lost 1%, with fears growing about Beijing’s ability to contain the Omicron wave across the country. On Tuesday, the lockdown in Shanghai was extended to cover the whole city – an estimated 25 million people – and questions are now being asked about whether China can continue to pursue its “zero-Covid” strategy.
Japan’s Nikkei 225 index of leading shares lost 2.8%, with technology investors in particular nervous about the prospect of rapid monetary policy tightening in the US.
April 1 | April 7 | Change (%) | |
|---|---|---|---|
FTSE 100 | 7537.9 | 7551.8 | 0.2 |
FTSE All-share | 4199.5 | 4199.5 | 0.0 |
S&P 500 | 4545.9 | 4500.2 | -1.0 |
Dow Jones | 34818.3 | 34583.6 | -0.7 |
DAX | 14446.5 | 14078.2 | -2.5 |
CAC 40 | 6684.3 | 6461.7 | -3.3 |
ACWI | 712.7 | 702.4 | -1.4 |
Hong Kong Hang Seng | 22039.6 | 21809.0 | -1.0 |
Nikkei 225 | 27666.0 | 26888.6 | -2.8 |
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 7 April 2022.
