Investors’ hands were trembling this month. No surprise, given the combination of stubbornly high eurozone inflation, mounting evidence of China’s economic stuttering, and previous stronger-than-expected US economic updates that made more hikes look more likely. So they nervously retreated: in just the first three weeks of August, the US’s S&P 500, Europe’s Stoxx 600, and China’s CSI 300 collectively lost $3 trillion in value. For context, that’s equal to the UK’s entire FTSE 100.
China’s long been the world’s growth engine, so its rocky state this year is giving the global economy the shakes. Mining company BHP, for example, relies on steel-hungry Chinese construction to eat up its iron ore. So when China stepped back from the building sites, not least due to ongoing trouble in its rattled property sector, BHP was stuck with a bleeding hole in its demand funnel and deflating prices for its commodities. The result: weaker than expected earnings.
Baidu cushioned the blow, mind you. China’s answer to Google revealed its fastest rate of revenue growth in two years, partly thanks to businesses eagerly ramping up post-lockdown ad campaigns.
There’s no guarantee those ads will pay off, though. Consumer spending’s held up through escalating interest rates so far, but now that Americans have used up their pandemic savings and student loan repayments are set to resume, they may well pull back their spending on nice-to-haves. Potentially foreshadowing that was fresh data out last week, showing that activity in the services sector shrank in the UK and eurozone in August and barely grew Stateside.
Budgets are tightening in the UK too, especially for homeowners with flexible mortgages. See, British mortgage rates aren’t set in stone for as long as they are in the US. Higher interest rates, then, have a lot of homeowners looking to downsize and lock in more manageable mortgages. But with buyers short on cash too, hopeful sellers are having to slash their asking prices – and that’s pulling the market as a whole down.
