Global stock markets showed mixed reactions on Friday as investors weighed the implications of central bank signals that interest rates will remain high to combat inflation. Wall Street stocks opened higher, but failed to sustain the gains amid talk of persistently elevated interest rates. The Bank of Japan maintained its ultra-loose monetary policy, while the Bank of England kept its interest rate at 5.25 percent, the highest level since 2008.
US stocks struggle to rally
The US stocks have been under pressure since the Federal Reserve’s Wednesday policy decision. While the US central bank kept interest rates unchanged, Fed officials signaled they could hike interest rates again in 2023. The Fed also announced that it will start tapering its bond-buying program in November, reducing its monthly purchases by $15 billion.
The broad-based S&P 500 finished at 4,320.06, down 0.2 percent for the day and 2.9 percent for the week. The Dow Jones Industrial Average rose 0.3 percent to 33,963.84, while the tech-heavy Nasdaq Composite edged down 0.1 percent to 13,211.81.
Steve Sosnick of Interactive Brokers said investor efforts to rally were “understandable” after two straight days of big declines on major US indices.
“Traders are conditioned to try to buy dips, and I think that’s what they tried to do this morning,” said Sosnick. “But there was really no follow through.”
UK stocks rise, pound dips
The UK stock market rose on Friday, but the British pound dipped against the dollar. The Bank of England on Thursday decided against hiking its interest rate for a 15th time in a row, leaving it at 5.25 percent, the highest level since 2008.
The central bank said it expects inflation to peak at around 5 percent in April next year, well above its 2 percent target. It also warned that the supply chain disruptions and labor shortages could persist for longer than expected.
“The no action is quite premature,” Ipek Ozkardeskaya of Swissquote said. “Whatever the Brits will import from now will cost them more than during the last months, when the pound was appreciating,” Ozkardeskaya said, adding that another rate hike is likely on the horizon.
The FTSE 100 index gained 0.1 percent to close at 7,683.91 points. The pound fell 0.4 percent to $1.3666.
Eurozone activity shrinks further
Major eurozone indices closed lower on Friday, as a key survey showed eurozone economic activity shrank further in September but at a slower rate. The IHS Markit flash composite purchasing managers’ index (PMI) rose to 56.1 from 55.7 in August, indicating a modest expansion in output.
However, the survey also revealed that inflation pressures intensified, with input costs and output prices rising at record rates. The survey also pointed to supply chain bottlenecks and labor shortages as key challenges for businesses.
“The eurozone economy continued to expand at a robust pace in September despite widespread disruptions from supply chain delays and staff shortages,” said Chris Williamson, chief business economist at IHS Markit.
“However, these same factors are also driving up prices at an unprecedented rate, adding to worries that persistently high inflation could become entrenched unless demand cools or supply improves.”
The DAX index in Frankfurt slipped 0.1 percent to end at 15,557.29 points, while the CAC 40 in Paris dropped 0.4 percent to finish at 7,184.82 points. The EURO STOXX 50 index also declined 0.1 percent to close at 4,207.16 points.
Japan keeps policy unchanged
In Asia on Friday, the Bank of Japan stuck to its long-term program of sub-zero borrowing costs. It comes as BoJ officials face increasing pressure to turn more hawkish as the yen weakens and after fresh data showed inflation remains stubbornly high.
The central bank kept its short-term interest rate target at -0.1 percent and its long-term bond yield target around zero percent. It also maintained its massive asset purchase program and its guidance that it will not raise interest rates until inflation exceeds 2 percent for a sustained period.
Policymakers have for several months hinted that they are willing to adopt a more normalized policy, such as minor tweaks to its yield curve control scheme, which sees the bank control the band within which government bonds are allowed to move.
But there are growing calls for it to move quicker, and they will not have been tempered by data Friday showing the consumer prices – excluding food and energy – jumped 4.3 percent in August, a three-decade high.
The Nikkei 225 index in Tokyo fell 0.5 percent to close at 32,402.41 points.
