Market snapshot: buoyant return for stocks after long weekend

UK shares are reacting to optimism in US and Asian markets and developments here today. Our head of markets has the details.

US markets recovered early losses, with the main indices landing flat to positive after a choppy session on Monday which followed the long Easter weekend.

It was the first opportunity that investors had to react to the non-farm payrolls figure, which was released on Good Friday. The reading of 236,000 was in line with expectations, with a moderate fall in the unemployment rate to 3.5% from a previous 3.6%. There was also a slight decline in wage inflation, all of which left the consensus unchanged that the Federal Reserve would persist with its hiking policy for now and raise rates by 0.25% at the upcoming May meeting.

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In the meantime, this week promises to uncover further clues, with a busy economic and corporate calendar in sight. Consumer price and producer price index data will provide fresh updates on the Fed’s battle against inflation, and at the end of the week the first-quarter earnings season begins in earnest as three of the larger banks report results.

The banks will be an early test of investors’ mettle on any number of fronts, not least of which will be the early fallout from the recent banking turmoil, as JPMorgan Chase & Co (NYSE:JPM), Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C) open the season.

In particular, loan growth will be scrutinised and could prove to be tepid in view of tightening lending conditions, while there will also be a close eye on any increase in souring loans, given the slowing economy. In turn, this could lead banks to increase provisions for bad debts once more, with the additional pressures of a deal-making drought and trading volatility also potentially weighing on earnings.

For the latest reporting period as a whole, expectations are extremely low, with companies having been buffeted by a strong US dollar, higher and inflation-led costs, slowing growth generally and, of late, further geopolitical uncertainty. Leading up to what could be a critical period in terms of the outlook for the next few months, the main indices have maintained progress in the year to date, with the Dow Jones ahead by 1.3%, the S&P500 by 7% and the Nasdaq remaining the standout performer with a gain of 15.5%.

Asian markets were more positive overnight, despite a disappointing Chinese consumer price index reading which implied weak demand as the country attempts to reverse the damage inflicted by the previous Covid-19 related lockdowns. More positively, this could also prompt authorities to take further corrective action to boost the country’s prospects, with the region as a whole seemingly more concerned with underpinning growth than being hamstrung by inflationary concerns.

Indeed, the new Bank of Japan governor stated that there was little prospect of interest rate rises in the immediate future, with the country’s loose monetary policy still being deemed as appropriate.

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UK markets returned after a long holiday weekend in buoyant mood, with the main indices displaying strength given the benign backdrop of other global markets’ performances. The FTSE100 added to previous gains and now stands ahead by 4.5% in the year to date, with a mixture of a move to a risk-on approach and strong UK retail sales data adding to the immediate optimism.

Retailers attracted some buying interest, as did the beleaguered housebuilders propelled by upgrades to Barratt Developments (LSE:BDEV) and Persimmon (LSE:PSN). Miners were also in demand as the main primary index attempted to claw its way back to the heightened levels achieved earlier in the year.

Retailers and the airlines also featured in pushing the more domestically-focused FTSE250 into positive territory, underpinned by the retail sales data. The index has been hovering around the waterline of late and the boost in early exchanges takes the index back to growth in the year to date, although the gain of just 0.3% is some way off previous highs.