Interactive Investor

Market snapshot: election movers and key US data

American investors return to the fray and publication of a crucial US jobs report, just as UK investors react to Labour's landslide election victory.

5th July 2024 08:18

by Richard Hunter from interactive investor

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With US markets closed for Independence Day, attention turned to the expected UK election landslide, while Asian markets were mixed to lower in the absence of any direction from Wall Street.

Prior to the public holiday, US markets had firmed again on renewed hopes of an interest rate cut in September, where the consensus is currently at a 73% probability, after some weak economic data.

Lower payroll growth, higher weekly jobless claims and a contractionary service-sector reading all seemingly played to the narrative that the economy is finally showing signs of capitulation under higher rates, potentially paving the way for an easing of monetary policy.

The acid test this week comes later with the release of non-farm payroll numbers, where it is expected that 190,000 jobs will have been added in June, compared to the previous month’s figure of 272,000, with the unemployment rate being unchanged at 4%.

Further colour will be added to the state of the nation next week as the corporate earnings season kicks off in earnest. Delta Air Lines Inc (NYSE:DAL) and PepsiCo Inc (NASDAQ:PEP) report on Thursday, with the banking sector following on Friday with updates from Citigroup Inc (NYSE:C), JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC), in what could prove to be an early read across to the UK banks, which report half-year numbers around the end of the month.

On the whole, investors are expecting a solid season, although guidance and outlook comments will be equally significant given concerns around a slowdown in the second half of the year.

In the meantime, the possibility of a more accommodative Federal Reserve stance was enough to push the Nasdaq and S&P 500 to record highs once more on Wednesday, with the indices now having risen by 21% and 16% respectively in the year to date, with the more traditional Dow Jones having added 4.3%.

Asian markets were mixed overnight in the absence of a lead from Wall Street, although Japan’s Nikkei index flirted with new highs before pulling back after the release of data showing a weakening of household spending, an important area of the country’s economy where consumer spending power is currently being curbed by the weakness of the yen and slightly higher inflation. However, this currency weakness has been beneficial for the fortunes of the main index as exports have become cheaper, boosting trade in the region.

Elsewhere, Chinese markets were weak, with little evidence of either an economic return to form or a warming of sentiment from international investors in the region, with Japan currently tending to be the preferred destination.

Lesser markets such as Taiwan and South Korea on the other hand, have seen a healthy tailwind given local exposure to the technology sector and, in particular, a smattering of stocks with exposure to AI, enabling them to benefit from the current investment fixation.

In the UK, the expected Labour landslide was effectively much ado about nothing in terms of market movement. The main index opened marginally higher, with sterling steady after recent gains which have lifted it to pre-Brexit levels on a trade-weighted basis, with investors speculating that the element of political uncertainty which has now been removed could lead to a period of some stability, albeit without significant growth in the shorter term.

One sector which most agree will see some benefit from the new political regime is housebuilding, which has seen some recent strength on hopes of reforms, less red tape in terms of planning and more supply.

In early trade, the likes of Persimmon (LSE:PSN), Vistry Group (LSE:VTY), Taylor Wimpey (LSE:TW.) and Barratt Developments (LSE:BDEV) all rallied on improved prospects, which are also being driven by the possibility of an interest rate cut later in the year.

The FTSE 100 is now ahead by 7% so far this year, while the more domestically focused FTSE 250 has added 5%, having swung from a negative position in previous months.

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