Market snapshot: calmer waters for now

The weekly market movement chart will show virtually no change when viewed through the lens of history, but will mask the turmoil which set investors on edge.

A further positive ending in the US on Friday left the benchmark S&P500 all but flat for the week, with the Dow Jones and Nasdaq recording marginal losses.

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The initial jobless claims report normally garners few headlines, but last week took on extra importance in the context of a weak non-farm payrolls report the previous Friday which triggered fears of an impending recession in the world’s largest economy. The print encouraged investors, following a pleasing service sector report which allayed immediate concerns to the extent that the non-farm payrolls number could have been an anomaly.

Even so, the volatility could easily reignite, especially set against the seasonal lack of liquidity which can exacerbate market movements. This week sees the release of retail sales and consumer prices in the US, with the latter estimated to have risen by 0.2% at both core and headline level, annualising to 3.2% for the core reading.

Retail sales meanwhile are expected to have added 0.8% after a weaker June, which would point to some resilience within the pivotal consumer sector. Further colour will be added on this front with the latest reports from the likes of Walmart Inc (NYSE:WMT) and The Home Depot Inc (NYSE:HD), although otherwise the reporting season is beginning to wind down.

The generally calmer sentiment has also lessened the likelihood of a 0.5% Federal Reserve interest rate cut in September from the previously estimated 0.25%, although the possibility remains on the table.

Meanwhile, the intra-meeting emergency cut which some investors had speculated on amid the turmoil now seems to have faded completely. Having regained some strength, the main indices now remain comfortably ahead in the year to date, with gains of 4.8% for the Dow Jones, 11.6% for the Nasdaq and 12% for the S&P500.

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Asian markets were broadly ahead overnight, although a public holiday in Japan lessened the amount of information available to investors. The yen extended its decline against the US dollar, which has been positive in the sense of stemming the tide of the unwinding of the carry trade which resulted in some violent swings last week, while also boosting the exporters to which Japan has a significant exposure.

China will also face some investor tests this week, culminating in the release of retail sales and industrial production figures on Thursday, for which hopes are not high. The consensus is that the readings will reveal further weakness in a tepid economic recovery, which could well heighten calls once more for some significant stimulus from the authorities, which to date has been in short supply.

The economic theme will also continue in the UK, with the release later in the week of both unemployment and inflation data. The recent rate cut from the Bank of England is not expected to be repeated this year, and the numbers will add some focus as to whether the reduction was appropriate at this point. The more recent market volatility has shaved some of the gains seen over recent weeks for the FTSE250, although the index is still up by 5% so far this year.

For the premier index, a decent opening was marked by some welcome strength in the beleaguered shares of Diageo (LSE:DGE) after a rare broker upgrade. The shares have fallen by 27% over the last year following weakness in its Latin American operations and some evidence of consumers dialling down from the premium drink offerings.

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The standout performer though, was BT Group (LSE:BT.A), whose shares added more than 6% at the open following the announcement that Bharti Global had agreed to acquire a 24.5% stake in the company, adding to BT’s hike of 15% over the last year.

On the flipside, a broker downgrade left JD Sports Fashion (LSE:JD.) in the red at the open, although the share price move did little to upset a run which has seen the price rise by 21% over the last six months. The FTSE100 has now added 6.3% in the year to date, and is still on alert as a stable haven investment destination should volatility persist elsewhere.