Market snapshot: bargain hunting lifts FTSE 100 but investors on high alert

As brave investors pick up cheap stock in London after the latest sell-off, our head of markets rounds up the overnight action and what's moving prices today.

Investors continue to seek solace in haven investments in the absence of any developments which could signal some relief from the current raft of pressures.

Heightened volatility in the currency markets has exacerbated what was already a torrid time in most asset classes, with equities reeling from the prospect of a global recession as central banks continue their aggressive monetary policies.

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Measured from its recent high in early January, the Dow Jones index has now slipped into bear market territory, joining the S&P500 and Nasdaq. In the year to date, these indices have lost 20%, 23% and 31% respectively. In much the same way that the weakness of sterling has limited losses in the FTSE100 given its largely international earnings focus, the strength of the US dollar has hampered the country’s own multinational stocks.

In addition, the prospect of higher interest rates – alongside an increasing expectation that rates will remain elevated for longer even after reaching the terminal rate – has blighted growth stocks, where the value of future earnings is being called into question.

As the third quarter draws to an end this week, the next sturdy test for investor confidence will follow over the following weeks as the earnings season unfolds. Even though expectations are unsurprisingly low, any earnings shocks are likely to add to the skittishness which has been a key feature within markets over recent months.

In the meantime, the environment in the world’s largest economy is already starting to show some signs which could lead to depressed prospects. Mortgage rates in the US have more than doubled and home sales are beginning to decline, while consumer confidence is being continually tested in the face of higher inflation. The next reading of the personal consumption expenditure index will be released on Friday, where the latest print of over 6% remained significantly higher than the Federal Reserve’s 2% target. 

Asian markets staged a brave attempt to make progress overnight, although gains were patchy and unconvincing. Further declines in China’s industrial profits were another indication of an economy under pressure, and took some of the shine from the previously released factory production numbers, which had shown a move towards improving growth. Even so, for the moment the watchword remains currency, and the pressure which the strength of the US dollar is exerting elsewhere is impacting across many regions, as well as asset classes such as gold and oil.

Sterling stabilised slightly, although is still sharply down against the US dollar over recent days, as the Bank of England reiterated its commitment to raising interest rates further, although this fell short of an emergency move which some had expected. Even so, the statement restored some relative calm, with an expectation that the next rate rise in November could be substantial, providing some support to the beleaguered currency.

Amid the general turmoil, the FTSE100 opened in positive territory, underpinned by tentative relief gains in stocks which have recently come under fire.

Nonetheless, the weakness as evidenced by further declines in the likes of the housebuilders and the retailers given a parlous economic backdrop which could yet come under additional pressure, has weighed heavily.

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Banks have also seen some selling activity despite a rising interest rate environment, with concerns inevitably arising that a recessionary environment could lead to higher levels of debt default.

The premier index is now down by 4.6% in the year to date, which remains a relatively robust performance in comparison to its global peers and indeed its more domestically-focused sibling, the FTSE250, which has now declined by over 24% this year.