Market snapshot: bleak start to week as new data and Q3 results loom

After an awful end to last week, investors have key data and the start of a new quarterly results season to contend with. Our head of markets runs through latest developments on global stock exchanges.

Markets suffered a bruising end to the week after the realisation of proof, if it were needed, that the Federal Reserve will maintain its aggressive assault on inflation.

The likelihood of a further 0.75% interest rate hike in November is all but nailed on in terms of market consensus after the non-farm payrolls figure revealed a labour market which is still strengthening. The headline figure of 263,000 was below the previous month’s number but ahead of expectations, while the drop in the unemployment rate to 3.5% from 3.7% was an unpleasant shock in reiterating the robustness of jobs growth.

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With higher interest rates continuing to erode projected company valuations, further tests of investors’ mettle follow later this week. In particular, the latest inflation reading will be followed by retail sales on Friday, both central to the US economic outlook.

At the same time, the third-quarter earnings season begins in earnest on Friday, with updates from banks such as Citigroup Inc (NYSE:C), JPMorgan Chase & Co (NYSE:JPM), Morgan Stanley (NYSE:MS) and Wells Fargo & Co (NYSE:WFC) adding to the raft of considerations.

Expectations are cautious. Apart from the effects of higher interest rates, corporate references to ongoing supply chain disruptions are possible, while higher labour costs are also likely to feature. The recent inexorable strength of the US dollar is also likely to overshadow earnings, particularly for those multinational companies with dependent overseas earnings.

In the meantime, the main indices managed to post a weekly gain despite Friday’s turbulence, although on the whole the overarching concerns of tightening monetary policy have left them deep in the red for the year as a whole, with the benchmark S&P500 down by 24%, the Nasdaq by 32% and the Dow Jones by 19%.

Asian markets were also downbeat on the general global picture, with trading thinned by holidays in Japan and South Korea. China added to the gloom with a contraction in services activity, while its semiconductor index dropped sharply after the publication from Washington of sweeping export controls, with particular emphasis on restricting Chinese participation.

The bleak baton was inevitably passed on to the UK, where markets also dipped in early trade. With inflation being an important theme for the week, the next step for the Bank of England in its own aggressive hiking policy will remain in mind, while unemployment numbers and GDP will add further colour to the outlook.

With sterling stumbling once more as full details of the government’s “fiscal event” are awaited, the FTSE250 continues to shoulder most of the pessimism, with the index down by almost 27% in the year to date.

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Nor is the FTSE100 exempt from the general gloom, although in relative terms the premier index remains an outperformer, having dropped by just under 6% in the year to date. Its exposure to an oil price which is still ahead by 25% this year and to any number of defensive (and in some cases inflation hedging) stocks has limited the downside, even in the face of the undoubted challenges to come.

In early exchanges, broad based writedowns were punctuated with some unconvincing strength in the likes of some defensive stocks, while BAE Systems (LSE:BA.) rose on the unfortunate news of escalating activity in the Russia/Ukraine conflict.