Market snapshot: Chinese event brings temporary relief

Corporate results are beginning to show the effects of inflation, and underperformance is being punished. But despite some more weak results on Wall Street, news out of China overnight has been taken well, writes our head of markets.

Mixed economic messages are adding to the volatility but detracting from the performance of markets, as investors continue to seek refuge from waning prices.

The latest example came once more from the US, where a late rally lacked enough conviction to see the session out, with the major indices all ending slightly in the red. Sentiment was hampered by an update from Cisco Systems Inc (NASDAQ:CSCO), whose shares dropped almost 14% after reporting a lower revenue outlook following component shortages from China and its own exit from Russia.

This follows a punishing week for the likes of Walmart Inc (NYSE:WMT) and Target Corp (NYSE:TGT), where higher fuel costs weighed on performance. Perhaps more importantly, restrained consumer demand led to concerns that this vital cog in the US economic machine may now be coming under pressure from general inflationary pressures.

The fact that inflation is finally feeding through to company results comes at the end of a generally positive quarterly season, with any underperformance being met by sharp markdowns. The volatility is expected to continue in the shorter term until such time as a positive catalyst can come to the rescue.

In the meantime, the Dow Jones has now declined by 14% in the year to date, with the benchmark S&P500 lower by 18% and the tech-heavy Nasdaq down by 27%.

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Some slightly more positive news emanated from Asian markets overnight, where China cut a key lending benchmark in an effort to revive an ailing housing sector. While the move is not seen as sufficient to overcome the more general headwinds of regional lockdowns and a lack of consumer demand for the quarter, it nonetheless shows something of a sympathetic ear from the Chinese authorities which could lead to more monetary easing in the near future.

This sense of relief may be temporary but washed through to UK shores in early trade as the FTSE100 got off to a positive start.

Yesterday’s torrid session had highlighted how precarious the hard-won gains are for the FTSE100 and wiped out gains for the year. Today’s early jump, however, restored some of the damage, leaving the premier index largely flat for 2022 as a whole.

A further update on the UK economy came in the form of a better than expected retail sales number, although an earlier survey showed that consumer confidence remains understandably depressed.

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Seen as a more accurate barometer for the UK economy, the FTSE250 is down by almost 16% in the year to date despite today’s bounce, leaving the premier index the investment destination of choice given its broader global exposure and appeal.