Stock markets: Investor confidence falls as inflation soars

Traders work on the floor of the New York Stock Exchange. Investor confidence has fallen this month
According to Hargreaves Lansdown, its investor confidence in the stock market is falling. Photo: Reuters/Brendan McDermid

Investor confidence has been knocked this month by rising inflation, political uncertainty and growing concerns about a global recession, new data has shown.

According to Hargreaves Lansdown, its investor confidence index fell by 10 points in July, down to 57.

Confidence dipped in all global sectors, with the largest drop being the North American sector, which fell by 20 points.

This was followed by Asia Pacific which fell from 89 to 77, and the global emerging sector which dropped 11 points to 64.

Confidence in the UK sector fell 10 points during the month to 57, while Europe and Japan declined nine and seven points, respectively.

Confidence in the North American sector fell the most during the month. Chart: Hargreaves Lansdown
Confidence in the North American sector fell the most during the month. Chart: Hargreaves Lansdown

The investor confidence index is compiled by surveying HL clients on a monthly basis. Each month the company sends the confidence survey to 6,000 random clients, with a representative split by age. On average around 10% of clients respond.

“Across the globe, central banks are raising interest rates in a bid to stem inflation – but with so much out of policy committee’s control, the immediate outlook remains bleak. The war in Ukraine continues to dominate prices, markets and the economic outlook,” Emma Wall, head of investment analysis and research at HL said.

“Over the weekend, Russia and Ukraine signed a deal which would allow grain to be exported from Ukrainian ports which immediately saw wheat prices fall to levels last seen pre-invasion. Yesterday, President Putin ordered attacks on one of the ports, causing wheat prices to rise again – and signalling to the world that the war – and associated political and price uncertainty – is far from over.

“Global investors have responded by selling out of equity funds, instead looking to lower-risk assets. Amongst the most bought funds on the HL platform this month have been both money market funds, and multi-asset funds invested for capital preservation, such as Troy Trojan, and the Personal Assets investment trust.”

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It comes as UK consumer confidence also remained at an historic low of -41 this month as the impact of soaring food and fuel prices, and rising interest rates continued to darken the financial mood of the nation.

According to GfK’s barometer, the overall index score was flat in July compared to the previous month, with two measures up, one down and two staying the same.

Meanwhile, US consumer confidence dropped to near 18 month low in July amid persistent worries about higher inflation and rising interest rates, pointing to slower economic growth at the start of the third quarter.

The survey from the Conference Board showed consumers sharply reining in their spending plans, with the share of those polled intending to purchase white goods such as refrigerators and washing machines over the next six months, the smallest since the current series began in late 2010.

Watch: How does inflation affect interest rates?