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Global stocks experienced a decline on Friday, signaling the worst week since March, as investors grappled with the possibility of a thriving US economy leading to prolonged higher interest rates.
At lunchtime, Wall Street’s S&P 500 remained unchanged and was on track for a 2.2% weekly decline. The Nasdaq Composite, which focuses on technology stocks, saw a decline of 0.2%.
This week, Equities stumbled due to strong US economic data, which diminished hopes of rate cuts by the Federal Reserve. Last month, the Federal Reserve raised interest rates to a 22-year high.
The FTSE All-World index is projected to experience a 2.4% decline for the week, marking its worst performance since the US banking crisis in March, which led to a global equities downturn.
The decline can be partially attributed to the so-called Magnificent Seven US megacap tech stocks: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. They are expected to lose nearly $1tn in market capitalization, heading for their third consecutive week of declines.
In Europe, the region-wide Stoxx 600 fell by 0.6%, resulting in a weekly decline of almost 2% and its worst monthly performance since September of last year. France’s Cac 40 slipped 0.4%, and Germany’s Dax was down 0.7%.
On Thursday, the US labor department reported a decrease in the number of people applying for unemployment benefits in the week ending August 12. This signifies that the economy remains strong in the face of higher borrowing costs.
“The market has reduced the expectation of future rate cuts as the economy remains resilient,” said Padhraic Garvey, regional head of Americas research at ING.
The sell-off in equities also had an impact on government debt markets earlier in the week. Yields on the benchmark 10-year US Treasury approached their highest levels since 2007 on Thursday before declining 0.08 percentage points to 4.23% on Friday. Bond yields rise as prices fall.
Yields on 10-year UK gilts fell 0.07 percentage points to 4.67% on Friday. Yields on the 10-year German Bund, Europe’s regional benchmark, declined by 0.09 percentage points to 2.62%.
Traders were further worried by weak economic data releases from China, indicating that the world’s second-largest economy may take some time to fully recover from the effects of severe Covid-19 restrictions over the past three years.
China’s CSI 300 stock index fell 1.2%, while Hong Kong’s Hang Seng dropped 2.1%. Japan’s Topix saw a decline of 0.7%, and South Korea’s Kospi slid 0.6%.
On Friday, China’s securities regulator announced market-friendly reforms aimed at boosting investor confidence. The reforms include a potential extension of trading hours for the country’s stock and bond markets, as well as lower transaction fees for brokers.
The renminbi slightly strengthened to trade at Rmb7.2812 against the dollar but remained close to its weakest level since November. This follows the People’s Bank of China’s efforts to defend the currency by setting the daily midpoint at Rmb7.2006 to the dollar, above market expectations.
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