Market snapshot: focus on central banks, tech sector and new data

Fresh comments from central bank leaders didn't stop Apple hitting another record high, but it's not the same for every company. Our head of markets assesses latest developments.

Comments from the ECB Forum in Portugal continued to grab investors’ attention, as central banks laid out their current views on the ongoing fight against inflation.

For its part, the Federal Reserve maintained a hawkish stance, with the likelihood of two further rate rises this year still very much in play. In addition, Fed Chair Jerome Powell commented that he did not see inflation falling to the required target before 2025, adding that “although policy is restrictive, it may not have been restrictive enough and it has not been restrictive for long enough.” There was a muted market reaction to these comments, with the Dow Jones slipping slightly but remaining ahead by 2% in the year to date.

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Elsewhere, the Nasdaq posted marginal gains as mega-cap technology stocks continued to underpin the majority of the market’s outperformance. Investors continued to accumulate positions in the likes of Tesla Inc (NASDAQ:TSLA), Microsoft Corp (NASDAQ:MSFT) and Alphabet Inc Class A (NASDAQ:GOOGL), while Apple Inc (NASDAQ:AAPL) hit a record closing high for the second day in a row. The economic moats around these companies, boosted latterly by investor optimism around the profit potential of artificial intelligence, has drawn investors to such stocks in their droves, with the S&P 500 now posting gains of 14% so far this year, and the tech-heavy Nasdaq 30%.

Further promising news came after the closing bell, with all major US banks passing the Fed’s annual stress test. The report concluded that all 23 banks “are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession.” With the current consensus being that the US is currently on course for a relatively soft landing, it is likely hoped that this acid test will not be necessary, while the comments also put pay to the more recent banking turmoil following the collapse of Silicon Valley Bank.

Economic data this week has been both plentiful and positive, particularly with regard to consumer confidence, and the latest updates will now come in the form of the final reading on first-quarter GDP today, followed by the Personal Consumption Expenditures report, seen as the Fed’s preferred gauge of inflation, tomorrow. With the inflation element likely to be of most interest, it will also be compared to the latest comments from the Fed, who clearly see the inflation fight as a work in progress.

Asian markets faced differing fortunes, with the Nikkei showing further strength as Japan faced the unusual dilemma of allowing inflation to tick higher. The return of inflation has helped boost stocks which are also showing signs of improving fundamentals and corporate governance. In China meanwhile, the jury remains out on the strength or otherwise of the economic recovery, while the People’s Bank of China forcefully pegged the yuan to a level which is seen as reflecting its discomfort with the more recent depreciation of the currency.

UK markets hovered around the flatline in opening trade, with central bank comments proving to be a reminder that further rate rises are likely, thus putting pressure on a teetering economy. The likely trajectory has been a thorn in the side for both the housebuilders and the banks in particular, where mortgage availability and affordability have also led to concerns around a potential increase in loan defaults. The scale of the declines has resulted in broker upgrades to the likes of NatWest Group (LSE:NWG) and Lloyds Banking Group (LSE:LLOY), each of which ticked higher.

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On the downside, Burberry Group (LSE:BRBY) was hit by a double whammy of a broker target price cut and being marked ex-dividend, while there was marginal but broad-based weakness among sectors which would usually be likened to risk-on investments.

The non-committal opening for the premier index leaves the FTSE 100 ahead by just 0.6% in the year to date, with the FTSE 250 flagging behind having now lost 2.5%.