Market snapshot: have we reached an inflection point? 

After months of significant losses and volatility, there now appear some reasons to be positive. Our head of markets examines the possible impact on investor sentiment.

Strong trading sessions on Friday capped a week of gains for global markets, as investors continue to mull the state of play with impacts of monetary tightening.

The more recent relief in sentiment has resulted in a number of factors suggesting that an inflection point may have been reached.

On the one hand, the recent slide in commodity prices – such as copper having fallen some 25% from its recent peak in March – has eased some inflationary concerns, while oil has also reigned in gains despite the obvious current demand/supply imbalance.

In addition, there are occasions when bad news can be good news. A record low in US consumer confidence level raised hopes that the Federal Reserve may begin to consider a lighter touch in its approach to tightening after the likely July hike. It also raised the possibility that the so-called “terminal rate” may be approaching, with the current consensus being that rates will reach 3.5% by March next year, down from a previous estimate of 4%.

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With the larger US banks receiving a boost after having comfortably passed the latest set of stress tests, and with the possibility of another spike in prices generally as the quarter-end rebalancing comes into focus, there could be room for manoeuvre in terms of further gains.

Even so, investors will need more evidence that the current stabilisation reflects the market having found a bottom, as opposed to simply being oversold, and the main indices still remain sharply lower. In the year to date, the S&P500 is still down by 18%, the Dow Jones by 13% and the Nasdaq by 26%.

The positive vibe spilled over into Asian markets overnight, which were also helped along by some economic data from China, which showed that its industrial profit fell by a lesser margin in May. With production starting to resume, the decline in profit of 6.5% compared with 8.5% in April, there is some hope that China may also have turned a corner.

The FTSE100 was also higher in early exchanges, with generally improving sentiment raising all boats.

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The levelling off of the oil price and commodities slide have weighed against the index most recently given its heavy general exposure, although losses have been marginal in comparison to the more severe losses seen by some global peers.

The premier index now stands down by just 2% in the year to date, still potentially under pressure and yet remaining attractive to international investors on valuation grounds.