Market snapshot: data in focus as UK bank results season ends

Wall Street is closed Monday, but there's plenty to keep investors this side of the pond occupied. Our head of markets rounds up recent action, its potential consequences and what's in store this week.

Following a mixed performance in US markets last week, this week is compressed but promises to be equally revealing.

A release on Friday saw export prices increasing by more than expected versus an anticipated decline, while earlier in the week the producer prices print also showed an acceleration in January. Inevitably, concerns resurfaced as to the Federal Reserve’s next move, with some debate over whether there would be two or even three further rate hikes this year.

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At present, inflation is remaining stubbornly elevated, even if there are signs that it may be peaking, while it is clear from the Fed’s perspective that not only does reducing inflation remain its prime objective, but higher rates could well be in place for longer than is currently being priced in by equity markets.

US markets may be closed in observance of President’s Day today, but there is no shortage of data coming through in the remainder of the week as investors ponder the current state of the nation. Fed minutes and a further inflation print in the form of the Personal Consumption Expenditures (PCE) number will provide further colour on the economy, while updates on consumer strength or otherwise are due as bellwethers The Home Depot Inc (NYSE:HD) and Walmart Inc (NYSE:WMT) also report.

The PCE release is expected to show a hike of 1.3% in January after two weaker months, with the annualised pace expected to have slowed marginally to 4.3%. In the meantime, Treasury yields spiked to levels not seen since towards the end of last year, as the bond market continues to factor in higher rates for longer and the enduring possibility of a hard recessionary landing.

Even so, the equity markets remain more optimistic for the time being and, in the year to date, the Dow Jones has added 2%, the S&P500 6.3% with the Nasdaq still the stand-out performer and ahead by 12.6% so far this year.

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Asian markets were mixed to positive following the announcement of unchanged prime loan rates in China, while the additional liquidity added to the system more recently by the central bank has heightened hopes that the economic recovery may be starting to gain traction. Less positively, geopolitical tensions were again in evidence, with some warnings emanating from the US that any material support from China to Russia in its ongoing conflict with the Ukraine would carry consequences.

Given the complex global backdrop, the premier index in the UK opened cautiously but remaining near its level of over 8,000 which was recently breached for the first time. The FTSE100 is now ahead by 7.5% so far this year, building on its marginal gain in 2022 which swam against the tide of declining global markets.

The index remains protected by its mixture of defensive, higher yielding shares, with additional exposure to banks which are seeing the benefit of rising interest rates and mineral stocks which are poised to pounce on recovering demand from China as the year progresses.

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This week will also see the close of the annual bank sector reporting season, which has been mixed so far on immediate prospects rather than the undoubted underlying capital strengths which are being displayed. HSBC Holdings (LSE:HSBA) reports final numbers tomorrow and Lloyds Banking Group (LSE:LLOY) on Wednesday, while elsewhere the skies will be in focus as full-year numbers come towards the end of the week from Rolls-Royce Holdings (LSE:RR.) and British Airways owner International Consolidated Airlines Group SA (LSE:IAG).