Market snapshot: data sends mixed messages

There are plenty of twists and turns for investors as inflation and latest economic data keep central banks on their toes. 

Global markets were mixed as investors continued to grapple with the imbalances which are inhibiting sentiment.

A solid reading from the non-farm payroll figure in the US was a double-edged sword. On the one hand, the figure of 390,000 comfortably exceeded expectations, with the unemployment rate unchanged at 3.6%. This suggested that the US economy is continuing to make progress despite a backdrop of high inflation and uncertain consumer confidence with the jobs market remaining tight.

In normal circumstances, this would allay recession fears which have weighed heavily on markets and could even prompt the view that the Fed was on track in engineering a soft landing for the economy.

However, it also prompted concerns that the Federal Reserve will therefore continue with its tightening policy at an accelerated rate on the basis that the economy is strong enough to withstand the additional pressure. This in turn threw doubt on the more recent hopes that the Fed may pause for breath if its rate hikes thus far could be seen to be having an impact on the labour market.

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With the latest inflation number due on Friday, the potential is high for the number to put the cat among the pigeons once more. A rise of 0.7% is expected for May, which would leave core inflation at around 6%. However, anything higher would again prompt expectations that the Fed’s current policy would need to extend beyond the rate hikes already expected in June and July.

As such, the main indices took another lurch downwards, leaving the flagship S&P500 index down by 13.8% in the year to date. The Dow Jones has now lost 9.5%, while the Nasdaq continues to bear the brunt of a perceived slowdown in growth and has declined by 23.2%.

The picture across Asian markets was, at least temporarily, markedly different. The gradual lifting of Covid-19 restrictions in China has led to hopes for a return of demand and consumer confidence, with the authorities still poised to offer monetary assistance as and when required in an effort to help the economy make up for lost ground.

Coupled with the potential of returning demand, supply in the oil market remains noticeably restricted, with the latest price hike from Saudi Arabia offsetting any relief from additional output increases from the OPEC+ members. The oil price is now ahead by 55% in the year to date, inevitably adding to concerns of more prolonged and persistent inflation.

In the UK, investors took their cue from the more buoyant moves within Asian markets after an extended Jubilee holiday weekend.

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The FTSE100 opened comfortably ahead, leaving it ahead by 2.9% in the year to date. Given the constituents of the index, the renewed strength of the oil price will have had an impact, but the gains were broadly based as the UK continues to be given serious consideration as the investment destination of choice in the current global environment.