Market snapshot: global relief rally as investors mull return to form

Positive economic data from the US coupled with lockdown restrictions easing in China and early gains for the FTSE 100 reassure investors.

The relief rally has taken to the global stage as investors mull the possibility of an economic return to form.

In the US, the Federal Reserve’s preferred inflation measure, the PCE, showed a rise of 0.2%, which was the smallest gain since November 2020. The reaction of bond yields subsequently suggested that inflation could be near or even at its peak, which would remove a major thorn in the side for investors.

At the same time, data showing an increase in consumer spending in April suggested that there is still life in a measure which accounts for almost 70% of US economic activity. Coupled with the potential inflation plateau, this could mean that stagflation can be avoided even though the Fed has not yet come to the end of its tightening cycle.

Non-farm payroll figures at the end of this week will receive their usual investor scrutiny and, in particular, whether the Fed hikes so far are having any impact on an otherwise robust jobs market. The consensus is for 350,000 jobs to have been added in May, as compared to the addition of 428,000 in April.

• Richard Beddard: this share’s fighting for a place in my top 10
• Stockwatch: a FTSE 100 value play or fool’s gold?
• How Terry Smith is investing as markets crash

In the meantime, volumes generally are expected to be lighter given the US Memorial Day holiday today. Despite a strong weekly performance for the main indices, there remains much to be done to alleviate the damage done hitherto in 2022. In the year to date, the flagship S&P 500 remains down by 12.8%, the Dow Jones by 8.6%, with the Nasdaq still in the cross hairs of declining sentiment, posting a loss so far of 22.5%.

Asian markets added to the positive momentum as China began to ease lockdown restrictions in both Beijing and Shanghai. The Premier has announced that there will be a range of measures aimed at boosting a beleaguered economy, with more detail to follow shortly. However, the damage has largely been done over the last few months, with an inevitable drop in consumer sentiment tied to a soaring unemployment rate, and with many economists predicting a contraction in the current quarter. Even so, a perceived improvement to the fractious US/China relationship has also improved sentiment, particularly given the limitations which global economies have had to endure this year.

The oil price has resumed its strong rally and now stands up by 54% in the year to date. The possibility of a ban on Russian oil and the beginning of the US driving season has had a dual impact on potential supply and demand, with a potentially improving situation in China also sitting in the background.

The UK has picked up the positive baton from global market moves, edging ahead once more and leaving the FTSE 100 up by 3.2% in the year to date. Early gains are broad based, tending to reflect those stocks which have been the subject of selling pressure given the economic outlook. Risks unquestionably remain and there are further challenges in plain sight, but for the moment investors are reacting positively to the latest developments.