Market snapshot: all eyes on major US jobs report

Stocks have swung wildly the past few days as investors weigh up rate hikes and an inevitable recession. Our head of markets brings you the latest news.

The hangover from the Federal Reserve’s latest hawkish comments continued, as US markets slipped for their fourth consecutive day on Thursday.

The comments, which flew in the face of optimistic investors hoping for some signs of a slowdown in rate hiking, underlined the Fed’s determined stance to tackle the issue of inflation. Not only did chair Jerome Powell assert that any thoughts of a pause would be “very premature”, but also that the terminal interest rate could be higher than previously expected. The news sent the consensus higher, where rates are now expected to peak at around 5%, as opposed to the previous 4.5% to 4.75% range.

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Markets remain hamstrung and unable to forge any real progress until such time as a cooling of inflation becomes evident and that the Fed is finally ready to take its foot off the pedal. Where there were previous hopes for a lower hike of 0.5% in December, investors are now evenly split between that number and what would be a fifth consecutive rise of 0.75%.

In the meantime, the next test for investors’ mettle comes in the form of the non-farm payrolls report, which is almost seen as a no-win scenario. If the expected number of 200,000 jobs being added is exceeded and the unemployment rate more or less unchanged, this will add further fuel to the Fed’s policy. This is despite the fact that the release would signal a drop from the previous month’s reading of 263,000, with the simple reality being that until unemployment begins to rise and the consumer therefore spends less, a lessening of inflation could remain out of reach.

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The confirmation of comments which investors perhaps should have expected has left the main indices floundering once more. In the year to date, the Dow Jones is now down by 12%, the S&P 500 by 22% and the tech-heavy Nasdaq, where growth stocks have taken the brunt of a rising rate environment, by 34%.

In stark contrast, Asian markets rose strongly overnight on speculation – as yet unsubstantiated – that China was ready to relax its zero-tolerance stance on Covid-19 measures. The limitations and lockdowns, which have exacerbated a decline in consumer confidence and a faltering property market, have crimped demand which has not only hampered the Chinese economy, but has also tipped over into other asset classes such as commodities and oil.

The UK remains a tale of two indices. The more domestically focused FTSE 250 continues to shoulder the burden of a pallid economy, where outlook comments from the Bank of England suggesting a long recession detracts further from any positive mood music. The 0.75% hike in interest rates also further turns the screw on an economy struggling to grow, with focus now turning from monetary to fiscal policy ahead of the government’s announcement on 17 November. The FTSE 250, which is down by 23% in the year to date, has been in the eye of the financial storm.

On the other hand, the more globally focused FTSE 100 continues to show relative resilience on a number of fronts. The decline of just 2% so far this year is a stark outperformance compared to many other global indices, propelled by a mixture of defensive and cyclical plays, with a particular weighting to the likes of the oil majors, and where an average dividend yield of 4% remains an additional attraction. The impact of commodity plays is also an important feature, buoyed by the Chinese speculation, and as evidenced by another mark up of such risk-on stocks as the FTSE 100 opened defiantly higher in early exchanges.