Market snapshot: a busy start to Q2 as investors await key data

US markets were mixed to lower as the new quarter began, with investors mulling data which cast further doubt on the likelihood of an interest rate cut in June.

The initial moves were positive as investors had the first chance to react to the Personal Consumption Expenditures, which had been released on Friday when markets were closed. The reading showed that core PCE, excluding food and energy, rose by 0.3% and 2.8% on an annual basis, both in line with expectations and keeping the June cut narrative alive.

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However, sentiment soon changed on the release of further economic data, most notably the US manufacturing index numbers. The report revealed that the sector was not only in its strongest position since September 2022, but also unexpectedly moved into expansion status, with a reading of 50.3 exceeding the estimated 48.3 and comparing with 47.8 the month previous. This fanned further fears that the economy is continuing to expand under its own steam, with the sharp spike in production and new orders, alongside rising component prices, also potentially adding to the possibility of further inflationary pressures.

In turn, the readings seemed to vindicate the comments from Federal Reserve chair Jerome Powell late last week that growth remained strong and inflation not yet at the target rate, thus meaning that the Fed does “not need to be in a hurry to cut”. Taken together the news took some wind out of the markets’ sails, with the current expectations for June now almost evenly split between a rate cut and a no-change decision. The next important reading comes at the end of this week with the release of non-farm payrolls, where 200,000 jobs are expected to have been added in March compared to 275,000 the month previous, with unemployment unchanged at 3.9%. The following week will herald the onset of the first-quarter reporting season, which could add further fuel to the fact that companies are also in rude health at present, thus potentially obviating the need for imminent monetary easing.

In the meantime, the main indices remain comfortably ahead despite the latest dip, with the benchmark S&P 500 ahead by 9.9% in the year to date, followed by the Nasdaq which has added 9.2% and the Dow Jones which is up by 5%.

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Asian markets were similarly uncertain overnight, both on the developments from the US as well as some local pressures. In Japan, the Nikkei index was choppy following currency swings over recent days, in addition to which the latest quarterly survey revealed that sentiment among large manufacturers had declined for the first time in a year. In contrast, Chinese stocks saw some relief following two days of market closure as movements unwound, with the latest batch of manufacturing activity numbers suggesting that at last the economic recovery could be in sight. Investor sentiment is likely to remain lukewarm on the region for the time being, however, with authorities apparently unwilling to intervene with a raft of large stimulus measures to boost the economy, especially those more in need of obvious revival, such as the beleaguered property sector.

However, the generally more positive news from China was enough to propel UK mining stocks in early trade, with the follow-through from an oil price which has risen by 14% so far this year also boosting the majors, as well as Asian-exposed banks such as HSBC Holdings (LSE:HSBA) and Standard Chartered (LSE:STAN). Reckitt Benckiser Group (LSE:RKT) shares were under further pressure following a broker downgrade, taking the cumulative position to a drop of 19% in the year to date.

Even so, the tentative buying interest has continued the revival of the main indices of late, propelling both into positive territory in the year to date, with the FTSE 100 ahead by 3.3% and within a whisker of repeating its record high recorded in February of last year. The FTSE 250 index has also overturned previous losses and now stands ahead by 1.2% so far this year.