Market snapshot: can major markets end week in positive territory?

There's no doubt that investor sentiment could go either way right now, so our head of markets runs through latest developments and how they're influencing share price direction.

Fluctuating sentiment is again in evidence, as investors react with some temporary relief to the absence of any new concerns.

Indeed, US markets are on course to finish their shortened trading week marginally ahead, although the progress does little to stem the damage already done so far this year.

In an example of skittish sentiment among investors, markets went into the close in positive territory after the final comments from the Federal Reserve Chair Jerome Powell revealed little new news. The fact that the Fed remains committed to aggressively reducing inflation was accompanied by some moves which suggest that action taken so far could already be having an impact.

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With manufacturing activity in general under pressure given the Covid-19 difficulties in China and the effects of the Russia/Ukraine war, the same is the case in the US where business activity slowed markedly in June. There will be another important development with the release later of another consumer sentiment reading, which the Fed will be watching closely, with the American consumer being central to economic prosperity.

At the same time, there has been some relief from the recent fall in commodities, which hitherto have been large contributors to the inflationary environment, especially within food and energy. For the week, Chicago wheat prices have dropped by almost 9%, oil looks set to lose around 2% and copper, seen as a bellwether of economic output, has fallen by over 7%. Such moves could herald an inflection point if maintained, thus considerably lessening inflationary pressure.

However, there have been many false dawns of late and investors are unlikely to react with sustained optimism until such a turnaround is confirmed. In the meantime, the main indices remain deep in the red for the year to date, with the flagship S&P500 having lost 20.4%, the Dow Jones 15.6% and the Nasdaq 28.2%.

The sense of relief, even though it could well prove to be temporary, also played out in Asian markets overnight. With authorities poised in the background to offer monetary assistance, and with the technology crackdown appearing to be waning, the situation in China is beginning to show some signs of improvement. At the same time, the President reiterated his commitment to ensuring economic growth of 5.5% for the year, which underpinned sentiment generally in the region.

Despite the pressure of more recently falling oil and commodity prices to which the index has a large exposure, the FTSE 100 also managed to open with similar defiance.

The index could eke out a gain for the week given movements of the last couple of days, although overall the FTSE remains down by 4.6% in the year to date, with commodity moves having pulled the rug from the progress it had previously made.

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Many of the attractions of the global index remain, such as the generous average dividend yield, a peppering of stocks both defensive and with pricing power, and with an undemanding valuation compared to global peers.

The FTSE 250 on the other hand, largely seen as a better barometer for the UK economy and its prospects, has taken the brunt of investor pessimism and has fallen by 20%. Alongside many of its global peers, the performance is proof, if proof were needed, that the road to recovery stretches out far ahead.