Market snapshot: an early quarter boost for stocks

Markets have generally started the new half-year in more positive mood, possibly boosted by some early quarter portfolio positioning.

US markets started July on a stronger note Friday, ahead of another shortened trading week in the US due to the Independence Day holiday today. This week will nonetheless brings some more economic clues, with the release of the latest Federal Reserve minutes and the non-farm payrolls report on Friday.

The latter will be of particular interest to investors, since recent economic data has tended to suggest that the Fed’s recent aggressive tightening policy is already starting to have some impact. A slowing of consumer spending and income, alongside a higher than expected drop in manufacturing activity has left the door open to more bullish investors, who anticipate a lighter touch from the Fed if the contractionary signs continue.

In addition, the most recent GDP tracker from the Atlanta Fed forecasts a contraction of over 2% in the second quarter, which would put the US in a technical recession following a drop of 1.6% in the first quarter.

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In the meantime, the current consensus for the non-farms is for the addition of 250000 jobs, as compared to 390000 in May, with the unemployment rate stable. A figure below the consensus would likely be received warmly, whereas a higher figure could simply confirm that the Fed is likely to continue tightening at a faster pace for the time being.

Even so, minor rallies as seen at the end of the week are of little relief in terms of the performance so far this year, where the S&P500 remains down by 20%, the Dow Jones by 14% and the Nasdaq by 29%.

Asian markets were mixed overnight, ahead of interest rate decisions from Malaysia and Australia later this week. Chinese shares were largely flat after another set of Covid-19 lockdowns in eastern China became necessary given the current zero tolerance policy, thus denting hopes that the economy could return to being fully functional.

Even so, the oil price resumed its climb and is now ahead by 44% this year. Despite the possible dent in demand from the Chinese announcement, the supply side of the equation remains tight, exacerbated by possible outages in Libya and shutdowns in Norway.

In early exchanges, the UK markets chose to bypass the Asian experience and took their lead from across the pond.

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The FTSE100 opened positively, driven largely by energy stocks and the oil majors in particular, leaving the index down by just 2% in the year to date. The FTSE250 also bounced on the open, although the index remains 20% lower in 2022.

With the second quarter reporting season closing in quickly amid lower expectations, hopes remain that there could be some rather more upbeat noises coming from boardrooms on the immediate outlook.