Yesterday’s drama saw the Bank of England warning about a painful recession and a slump in the pound followed, although the currency (versus the US dollar) briefly made a full recovery to pre-interest rate decision meeting levels in the early hours of Friday.
Markets habitually experience knee-jerk reactions and this week has been no different. Despite investors having already anticipated a large interest rate rise and a bleak economic outlook, they still panicked when the figures were presented to them along with gloomy commentary from the central bank.
Russ Mould, investment director at AJ Bell, said: “Pushing up rates is vital to bring down inflation but having a weaker currency will serve to drive inflation even higher as the cost of importing goods goes up. The Bank of England certainly has its work cut out.
“Despite the pound’s attempts at fighting back from Thursday’s slump, investors looking at London-listed stocks clearly seem to prefer companies which earn in overseas currencies, judging by the performance on the FTSE 100 at the end of the week.
“Miners all earn in dollars, and they topped the leader board, helping to drive the blue-chip index up 0.6% to 7,233. Prudential and Burberry were also key risers, helped by their foreign exposure and hitching a ride on the rally in Asia-focused stocks.
“The Hang Seng index recorded its biggest weekly gain in 11 years, rising 8.7% to 16,161. A good chunk of those gains came on Friday as stocks jumped in anticipation that the Chinese government would relax its zero-Covid policy from March next year.
“Prior to this week’s rally, Asian stocks had struggled this year amid fears about a sharp slowdown in economic growth partially caused by stringent Covid lockdown rules in China. Even after the rebound this week, Hong Kong’s index remains 30.6% lower year-to-date.
“HSBC’s London-listed shares have been remarkably firm this year, but it is coming under increased pressure from major shareholder Ping An which has reportedly called on the bank to be more aggressive with cost cuts. In a classic activist investor move, Ping An wants HSBC to demerge its Asian operations.”