Market snapshot: few places to go ahead of key data

It's all eyes on inflation data and central bank policymakers, but investors will have to wait for this big news. Our head of markets has the latest on global stock movements.

A dearth of economic and corporate data has left markets with few places to go, although the main indices edged marginally higher.

Traders seem squarely positioned ahead of next week, when the latest inflation data becomes available before the Federal Reserve announces its latest interest rate decision. Inflation is likely to have cooled once more in May, although core prices could remain higher than the Fed would like in its ongoing battle to strangle inflation.

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The current consensus has now very much swayed to an expectation that the Fed will pause hiking next week, with the possibility of a rise in July now being an even bet. In the meantime, markets could fall into something of a holding pattern ahead of these releases which will dictate shorter term price movements.

Over the next few months, the jury is out as to what the impact of the aggressive hiking policy will be on the economy. Of late, there have been pockets of data suggesting a slowdown in the economy, and if this proves to be a trend, the next test will be whether a soft landing can be engineered, or whether a recession will follow. Depending on the outcome, the Fed could consider cutting interest rates, although its base case currently remains that rates will remain higher for longer.

There are factors which could help to stave off a wider recession, with the debt ceiling issue having been resolved and with tremors within the banking system largely having been contained.

However, there are also some concerns that the strength of the market’s performance over the last few months has been skewed by a select few stocks, and that corporate profit expectations remain too high given the inflationary and interest rate backdrop. In the year to date, the Dow Jones is ahead by 1.3%, the S&P500 by 11.6% and the Nasdaq by 26.8%.

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Asian markets were mostly higher, with further weak economic data from China spurring hopes of a stimulative intervention from the authorities in order to get the recovery back on track. Chinese exports fell by 7.5% compared to a year earlier in May, with imports dropping by 4.5%.

With China struggling to boost imports and sluggish domestic demand and an ailing property sector adding to the mix, speculation is mounting that policy support could be on the cards before long.

A small but expected decrease in average UK house prices underlined the pressure which the market is currently facing, as potential buyers become more cautious ahead of the likelihood of further interest rate rises to come, also impacting those with fixed rate deals which are set to expire soon.

The housebuilders have inevitably been in the eye of this particular storm, with the likes of Persimmon shares having lost 44% over the last year.  

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Broker notes also affected early share price moves, with upgrades to Melrose Industries (LSE:MRO) and Associated British Foods (LSE:ABF) being offset by downgrades to Croda International (LSE:CRDA) and with the oil majors ticking lower once more after a recent decline in the oil price, prompted by general and global economic headwinds on demand.

The FTSE100 is still ahead by 2.1% in the year to date despite the weaker open, and in the short term will inevitably feel the impact of economic news coming next week from the other side of the pond.