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Global sell-off in February

 

February 2018

Equity markets experienced a global sell-off during early February triggered by concerns that US interest rates might rise more rapidly than previously expected. Equity indices in the US dropped sharply, falling by more than 10% from their highs to enter “correction” territory, but went on to recover later in the month. 

  • UK interest rates may rise more quickly and more strongly than expected
  • ECB policymakers expressed concern over exchange rates
  • Japan’s economy posted eight consecutive quarters of growth

Equity markets experienced a global sell-off during early February triggered by concerns that US interest rates might rise more rapidly than previously expected. 

“Investors were spooked by news of better-than-anticipated US employment data”

Equity indices in the US dropped sharply, falling by more than 10% from their highs to enter “correction” territory, but went on to recover later in the month. Over February as a whole, the Dow fell by 4.3%. Investors were spooked by news of better-than-anticipated US employment data alongside signs of strengthening wage growth. Meanwhile, minutes from the January meeting of the Federal Open Market Committee (FOMC) suggested that Federal Reserve (Fed) officials expect US economic growth to continue to gather pace. The news stoked speculation that monetary tightening could be more intense and less gradual than previously predicted.

The Bank of England’s (BoE’s) quarterly inflation report suggested that interest rates might have to rise earlier and to a larger extent than previously expected, citing the effects of a strengthening global economy. The BoE upgraded its forecast for UK economic growth this year from 1.7% to 1.8%, but warned that Brexit-related uncertainties continue to pose the greatest risk to the economic outlook. The FTSE 100 Index fell by 4% over February.

During the month, the European Commission (EC) flagged the controversial prospect of Northern Ireland remaining in the customs union after Brexit, described as an area “without internal borders in which the free movement of goods is ensured and North-South cooperation protected”. The eurozone’s economy grew at an annualised rate of 2.7% during 2017 and a quarterly rate of 0.6% during the last three months of the year. Policymakers at the European Central Bank (ECB) expressed some concern during the month over the weakness of the US dollar and the strength of the euro, warning that recent volatility in the euro was “a source of uncertainty which required monitoring”. The Dax Index dropped by 5.7% over February, while the CAC 40 Index declined by 2.9%.

Share prices in Asia plummeted in sympathy with other major equity markets during February, and the Nikkei 225 Index fell by 4.5% over the month. Economic growth in Japan slowed sharply during the final three months of 2017: Japan’s economy posted annualised growth of 0.5% during the final quarter of the year, compared with growth of 2.2% during the third quarter. Nevertheless, the country has achieved eight straight quarters of positive growth.

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