Market snapshot: the data that could trigger US Fed tapering

It's a big day for stock watchers and the US central bank as the monthly employment report is due at lunchtime. Our head of markets tells us what to look for.

Investors took heart from a legislative breakthrough before turning attention to the non-farm payroll numbers due later.

After some limited fears around a potential US default, the Senate approved a temporary lift to the $28.4 trillion debt limit which should stave off such concerns for the time being.

In terms of economic data, today marks the culmination of the week, as the US jobs figure is announced. After a much weaker than expected reading of 235,000 for August (which is likely to be revised higher today), the consensus is that 500,000 jobs will have been added in September.

While there is no official number available, it is believed that such a reading would trigger the tapering of Federal Reserve stimulus, and would be announced at the November meeting.

By the same token, and perhaps less likely, another miss on the consensus figure would further heighten inflationary concerns, and the possibility of the emergence of stagflation in particular. The US economy has suffered over recent months due to a combination of factors ranging from an uptick in Delta variant cases to supply chain and job shortages.

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Further colour will be given on the state of the nation next week, when the third-quarter reporting season begins in earnest as the banks report results. Investors will be focused on any elevated fee income following a surge of M&A activity, further bad debt releases, levels of loan appetite and trading profits following a volatile quarter.

Leading up to the reporting season, the main indices have regained some poise, with the Dow Jones up by 13.6%, the S&P500 17% and the Nasdaq 13.7% in the year to date.

There has also been a relief rally in the UK, as energy prices have steadied and as investors have been tempted back on valuation grounds following a difficult few trading sessions which has depressed share prices. 

Some sterling weakness is also propping up the FTSE100 given its majority exposure to overseas earnings, while the more domestically focused FTSE250 has also recouped some losses following some buying on the dip from investors still keen on the UK economic recovery story.

As such, the FTSE100 is now ahead by 9.9% in the year to date, but the FTSE250 remains a stronger performer with a rise of 10.4%. The latter has suffered in particular over the last week given the wider economic concerns and may well now represent an investment destination of choice for bargain hunters.

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