Global Stock Markets Fall for the Second Consecutive Week, Dollar Strengthens

Global stock prices fell last week for the second consecutive week, as it is highly likely that due to high inflation, interest rates in the U.S. and other Western countries will remain elevated longer than expected.

On Wall Street, the Dow Jones fell 1.3% last week to 33,507 points, while the S&P 500 dropped 0.7% to 4,288 points. The Nasdaq index, however, strengthened by 0.1% to 13,219 points.

The largest global stock exchange has been trading uncertainly for about ten days since the leaders of the U.S. central bank indicated that interest rates could rise further by the end of the year and could remain elevated longer than expected.

As a result, yields on U.S. 10-year Treasury bonds reached new highs not seen in 16 years, making bonds an increasingly attractive investment.

Investors are also concerned about the risk of a temporary shutdown of government services, which would negatively impact the U.S. economy.

If Congress does not secure funding for the fiscal year starting October 1, government operations would be halted, and hundreds of thousands of employees would temporarily be left without jobs and pay.

Every year around this time, Republicans and Democrats negotiate further funding for government services, and an agreement is usually reached at the last minute.

On the other hand, macroeconomic data has supported the market, showing that the U.S. economy grew solidly in the second quarter and continues to grow steadily in the third quarter.

Inflationary pressures are gradually easing. On Friday, a report on personal consumption expenditures was released, indicating that inflation has slipped below 4% for the first time in over two years. However, this is still significantly higher than the Fed’s target level of 2%.

In September, the Dow Jones fell 3.5%, the S&P 500 nearly 5%, and the Nasdaq index 5.8%.

As a result, the indices recorded declines throughout the entire third quarter. The Dow Jones lost 2.6%, the S&P 3.6%, and the Nasdaq 4.1%.

European stock prices also fell last week. The London FTSE index slid 1% to 7,608 points, while the Frankfurt DAX fell 1.1% to 15,386 points, and the Paris CAC dropped 0.7% to 7,135 points.

The FTSE 600 index of leading European stocks fell 2.1% in September and 2.9% in the third quarter.

Dollar Strengthens for the 11th Consecutive Week

In the currency markets, the value of the dollar against a basket of currencies rose last week for the 11th consecutive week, as interest rates in the U.S. are expected to remain elevated longer than anticipated, while the economy continues to grow solidly.

The dollar index, which tracks the value of the U.S. dollar against six major world currencies, rose 0.55% last week to 106.17 points, hovering around its highest level in 10 months.

At the same time, the dollar strengthened by 0.7% against the European currency, causing the price of the euro to slip to $1.0578.

The dollar exchange rate also rose against the Japanese currency by 0.7% to 149.40 yen.

The dollar’s strengthening for 11 consecutive weeks has not been recorded in nearly 10 years, and as a result, the dollar has strengthened by more than 3% against the basket of currencies in the past quarter.

Support for the dollar continues to come from recent estimates by Fed officials that due to elevated inflation, another interest rate hike of 0.25 percentage points will be necessary by the end of the year, in the range of 5.50% to 5.75%, and that rates may remain elevated longer than expected.

Last week, it was reported that the U.S. Gross Domestic Product (GDP) grew by 2.1% on an annualized basis in the second quarter, although the Fed has raised rates by 5.25 percentage points since March of last year.

Although slowed, this is stronger growth than in other Western economies.

Inflationary pressures are gradually easing. On Friday, a report on personal consumption expenditures was released, indicating that inflation has slipped below 4% for the first time in over two years. However, this is still significantly higher than the Fed’s target level of 2%.

– Prices have risen on a monthly basis, but overall inflation is easing. This is good news for the market as the Fed monitors the core inflation rate – says Peter Cardillo, an economist at Spartan Capital Securities in New York.

The dollar is strengthening due to expectations that the U.S. economy will remain more resilient to elevated interest rates and oil prices than other major economies in the world, says Cardillo.