Global stocks experienced a decline on Monday as investors awaited upcoming interest rate decisions and expressed concerns over the absence of a stimulus plan to revive the Chinese economy.
Equities had enjoyed a strong rally the previous week, fuelled in part by expectations of economic measures from Beijing following two interest rate cuts. However, the lack of new policy announcements on Monday, combined with US markets being closed for a public holiday, weighed on market sentiment. London’s stock market retreated by 0.7%, while Frankfurt and Paris both recorded losses of one percent.
On the JSE, South Africa’s All-Share index ended 0.7% lower, while the rand exhibited slight strength, trading at R18.18 against the US dollar.
OANDA analyst Craig Erlam remarked, “It’s a US bank holiday, which always has a significant impact on trading volumes.” He also highlighted that the key events to watch this week are UK inflation data and the Bank of England’s (BoE) decisions. Inflation persistently poses challenges globally, and signs of progress in the UK, where it has been particularly stubborn, could have a positive impact overall. However, Erlam cautioned that the UK appears to be the least likely among major economies to successfully manage inflation while achieving a soft landing.
AJ Bell investment director Russ Mould mentioned the ongoing concerns about China’s recovery following the easing of Covid restrictions. The anticipated post-Covid surge in China seems to be losing momentum, creating uncertainty about how Chinese authorities will seek to stimulate the economy.
Oil prices also experienced a setback due to worries over energy demand from China, which is a significant consumer of crude oil.
On a positive note, hopes for improved China-US relations were bolstered as US Secretary of State Antony Blinken held meetings with President Xi Jinping and top envoy Wang Yi in Beijing.
Market participants are anxiously awaiting interest rate decisions from the Bank of England, the Norwegian central bank, and the Swiss National Bank, all scheduled for Thursday. These decisions follow the recent pause by the US Federal Reserve and a rate hike by the European Central Bank. The Bank of England is widely expected to raise its key interest rate for the 13th consecutive time in its efforts to combat high inflation. Investors are concerned about the magnitude of the hike and are also waiting for UK inflation data to be released on Wednesday.
In the UK, the yield on two-year bonds surged above five percent on Monday, reaching a level not seen since the global financial crisis of 2008. The market is uneasy due to commercial banks increasing interest rates on mortgage products in anticipation of further rate hikes by the Bank of England. This trend poses a threat to consumer spending and exacerbates the cost-of-living crisis in the UK.
Analysts have expressed concerns that higher rates are putting pressure on commercial real estate and house builders, leading to increased borrowing costs across various sectors.
The European Central Bank’s recent decision to raise borrowing costs in the eurozone to a 22-year high in order to curb inflation contrasts with the US Federal Reserve’s decision to pause, while the Bank of Japan maintained its ultra-loose monetary policy.
Investors will closely follow the twice-yearly testimony of Federal Reserve Chairman Jerome Powell to Congress this week, hoping for insights into the central bank’s policy considerations.
