Global stock markets ended the week on a mixed note, with investors concerned that interest rates will remain elevated and over the uncertainty of China's economic prospects.
Minutes from the US Federal Reserve's Federal Open Market Committee on Wednesday indicated that another rate rise is on the table as officials still see inflation as a threat.
Most officials “continued to see significant upside risks to inflation, which could require further tightening of monetary policy”, the minutes said.
After pausing its tightening cycle in June, the Fed increased its policy rate for the 11th time since March 2022 by 25 basis points, the highest since 2001, as it aims to bring inflation down to its 2 per cent target range after prices hit a four-decade high in June 2022.
The Fed has raised rates by a total of 525 bps since March 2022, but investors became a bit optimistic that the US central bank was done raising rates and might start cutting them in 2024, given that inflation has considerably lowered since peaking in the summer.
However, latest economic data, particularly a stronger-than-expected retail sales report, signals that inflation may still be on the rise, hampering these hopes.
The US economy added about 187,000 jobs in July, which is below the projected 200,000 from analysts – data that suggests the Fed's interest rate rises may lead to an elusive soft landing, or bringing down inflation without plunging the economy into recession.
Markets will be looking forward to Fed chairman Jerome Powell’s speech next week at the Fed's key annual symposium at Jackson Hole, Wyoming.
In China, meanwhile, the central bank cut key policy rates for the second time since June in an attempt to revive sagging economic growth.
The world’s second-largest economy has officially fallen into deflation, with both consumer and producer prices declining in July compared with a year ago.
“Uncertainties remain, yes, but the resilience of US consumer spending sapped investor sentiment by fuelling inflation expectations and Federal Reserve hawks, yet again,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, wrote in a note.
Indices on Wall Street barely budged, with the S&P 500 inching down by 0.1 per cent. The index has lost about a quarter of its gains in August alone compared to its strong first seven months of 2023.
The Dow Jones Industrial Average rose a meagre 0.1 per cent. The tech-heavy Nasdaq composite shed 0.2 per cent to post a fourth straight session of declines and its longest weekly losing streak since December.
For the week, the S&P 500 declined 2.1 per cent, the Dow retreated 2.2 per cent and the Nasdaq shed 2.6 per cent. For 2023, however, they remain up, gaining 13.8 per cent, 4.1 per cent and 27 per cent, respectively. The Nasdaq has been lifted by a hot tech sector.
In Europe, stock markets ended lower to drag stocks to their lowest level in six weeks, also weighed down by worries on interest rates, which hit health care and banking stocks, and China's economy.
At the close on Friday, London's FTSE 100 settled 0.7 per cent lower, its worst in about five months and biggest weekly decline in more than a month.
In other major European bourses, Frankfurt's DAX declined 0.7 per cent and the Paris CAC 40 lost 0.4 per cent.
Asian shares logged significant declines earlier on Friday, with Hong Kong's Hang Seng losing 2.1 per cent at the close of trading and the Shanghai Composite retreating 1 per cent, directly affected by concerns on China's economic prospects.
Tokyo's Nikkei 225 shed 0.6 per cent, while South Korea's Kospi declined 0.6 per cent.
In commodities, oil prices settled higher on Friday but posted their first weekly loss since June, snapping a seven-week winning streak, amid China's growth concerns and fears of further monetary tightening.
Brent rose 0.81 per cent, or $0.68, to settle at $84.80 a barrel, while West Texas Intermediate added 1.07 per cent, or $0.86, close at $81.25. For the week, both Brent and WTI retreated about 2.3 per cent.
Gold, meanwhile, was virtually flat, rising less than 0.1 per cent, or $1.30, to $1,916.50 an ounce, to post its third consecutive weekly decline, also on expectations of high interest rates to stay.
The precious metal, a hedge against high inflation, “does not seem like an ideal asset class in the current environment”, said Phillip Streible, chief market strategist at Blue Line Futures.