On Friday, world stocks closed the day with the sharpest weekly slide since March 2020 when the pandemic meltdown had occurred. This was because investors were concerned about the impact on economic growth of the tighter monetary policies imposed by central banks for fighting inflation.
Markets Were Roiling
The European Central Bank’s decision to support the indebted south, the fifth consecutive increase in the interest rates by the Bank of England, the surprise hike in rates by the Swiss National Bank and the largest rate hike by the US Federal Reserve in almost two decades had markets roiling.
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The only central bank that did not follow the same approach this week was the Bank of Japan. Even though money prices went up throughout the world, the Japanese central bank was adamant about sticking to its existing policy and keeping its 10-year yields near zero.
Volatile Stock Movements
Early in the day, world stocks had recorded sharp losses, but they steadied a bit towards closing. Nonetheless, they still ended Friday’s trading session with a decline of 0.12%, which meant that they had declined about 5.8% in the week. This is the steepest decline recorded after 20th, March, 2020.
There was a 0.13% drop in the Dow Jones Industrial Average, while a 0.22% gain was recorded by the S&P 500 index. Meanwhile, there was also a 1.43% increase in the Nasdaq Composite. The S&P 500 had recorded a weekly decline of about 5.8% and this is the sharpest fall recorded since the third week of March, 2020.
Analysts weigh in
According to analysts, global recovery from the pandemic has been derailed because of lockdowns in China, the Russia and Ukraine war and excessive inflation. Economists have predicted that there is a 40% possibility that the United States will see a recession hit in the coming year, with the US Federal Reserve prepared to continue increasing interest rates until it sees inflation coming down.
They said that inflation was likely to settle around 3% and GDP growth would come down to almost zero. As far as the interest rates are concerned, the Fed is expected to take it as high as 4%. On Friday, the Fed said that it was willing to do everything to fight against inflation.
Other Markets Also Volatile
The broadest MSCI index of Asia-Pacific shares not including Japan also nosedived to reach a low of five weeks. This was primarily because of all the selling seen in Australia. Meanwhile, there was a 1.8% decline in the Japanese Nikkei 225 index, as it was on its way to record a weekly decline of about 7%.
The currency and bond market also remained jittery for the entire week. The yen also recorded declines because of the Bank of Japan’s decision to not change its policy. Late Friday saw the currency fall by 2.2% and this gave a boost to the US dollar, which recorded gains of 0.73% against a group of its peers. As long as central banks continue with their aggressive policies, markets are in store for more volatility.
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