Global Stock Markets Decline Amid Rising U.S. Inflation
Global stock markets experienced a decline on Friday following news of higher U.S. inflation. This development has created unease about the future of the world’s biggest economy. Wall Street futures were mixed, while major markets such as London, Shanghai, Paris, and Hong Kong all saw a decline. Japanese markets were closed for a holiday, while oil prices also edged lower.
On Thursday, Wall Street’s benchmark S&P 500 index gained less than 0.1% after it was revealed that consumer prices rose by 3.2% in July. Although this figure was higher than the previous month, it was below forecasts. The hope is that the Federal Reserve will conclude that inflation, which hit a peak of over 9% last year, is now under control and no further interest rate hikes are necessary.
Investors are closely watching to see if higher interest expenses will lead to any distress or defaults. There is a belief that the Federal Reserve’s anti-inflation campaign has been effective, and the hope is that the central bank can achieve a soft landing by cooling inflation without triggering a recession.
In Asia, the Shanghai Composite Index lost 2%, the Hang Seng in Hong Kong fell by 0.9%, and the Kospi in Seoul declined by 0.4%. However, New Zealand and Bangkok experienced gains while other Southeast Asian markets saw declines.
Wall Street’s belief that inflation is under control and the Fed’s rate-hiking cycle is complete has faced criticism from some quarters. The Federal Reserve has previously mentioned that its decisions regarding rate increases will be based on inflation, hiring, and other relevant data. Additional reports on inflation and hiring are expected before the Fed’s next meeting, which ends on September 20.
Big U.S. companies have mostly reported better-than-expected profits. Disney, for instance, saw its stock rise by 4.9% after the company announced it would raise prices for some of its streaming services in an effort to boost profitability. Meanwhile, Capri Holdings, the owner of luxury brands such as Michael Kors, Versace, and Jimmy Choo, experienced a 55.7% increase in stock value after Tapestry, the parent company of Coach, announced its acquisition of Capri Holdings for around $8.5 billion.
In the bond market, the yield on 10-year Treasury debt rose to 4.09% from 4.01%, while the two-year Treasury yield increased slightly to 4.81% from 4.80%. In energy markets, benchmark U.S. crude lost 14 cents to $82.68 per barrel, while Brent crude, the basis for international oil trading, lost 14 cents to $86.26 per barrel.
The dollar declined to 144.58 yen from Thursday’s 144.72 yen, while the euro held steady at $1.0990.
Analyst comment
This news can be seen as negative for the market. The decline in global stock markets due to rising U.S. inflation has created unease about the future of the world’s biggest economy. Investors are concerned about higher interest expenses potentially leading to distress or defaults. The hope is that the Federal Reserve’s anti-inflation campaign will achieve a soft landing without triggering a recession. However, there is criticism regarding Wall Street’s belief that inflation is under control and the Fed’s rate-hiking cycle is complete. The market is uncertain and awaiting further reports on inflation and hiring before the Fed’s next meeting.
