UK shares have extended their winning streak into a seventh session, but it's all eyes on Wall Street and a rush of economic data and corporate results. Our head of markets has the latest.
A robust early showing from US banks could not prevent a market slip as economic data pointed to the near certainty of another Federal Reserve interest rate hike in May.
The initial relief was palpable as reports from several banks suggested that the recent banking turmoil was not systemic and rather more applicable to smaller, regional banks. Indeed, there were some indications of a flight to safety, with consumers moving to larger, more stable institutions.
JPMorgan Chase & Co (NYSE:JPM), for example, saw deposits rise by 1.5% over the quarter and accompanying comments reported that consumers were still spending and that businesses remained in good shape. At the same time, however, the bank noted that the “storm clouds” which had been gathering remained on the horizon, and were still being monitored.
These comments were then somewhat undone by a retail sales report which showed a decline of 1% in March, as compared by an expected dip of 0.5%. While some of the fall was attributed to the lower cost of fuel, nerves remain on edge towards the consumer, which is a major driver of economic growth in the US, and any softness in further releases could presage a recession to come. The severity of such a recession will also become clearer in the months ahead.
Meanwhile, an indicator of consumer sentiment saw a slight increase in inflation expectations. Taken together, the economic picture pointed to an almost certain outcome, namely that the Fed will likely pursue its hiking policy with at least one more rise of 0.25% in May.
The corporate calendar continues apace this week, with further evidence of banking balance sheet strength anticipated in releases from the likes of Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS). The Goldman Sachs Group Inc (NYSE:GS)’ numbers will be scrutinised on a perceived lack of deal making and trading activity over the last quarter, while Netflix Inc (NASDAQ:NFLX) and Tesla Inc (NASDAQ:TSLA) will also give a broader feel for the mood of the consumer.
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Expectations for the quarter overall remain depressed, with earnings across the piece expected to dip by more than 5%, which more positively could open the door for positive surprises. Equally, outlook comments for the next quarter from corporates may well set the scene in establishing the general economic direction.
Despite the late Friday dip, most of the indices posted gains for the week and have upheld positive year to date performances, with the Dow Jones having now added 2.2%, the S&P500 7.8% and the Nasdaq 15.8%.
Asian markets traded mixed on the back of the weaker US close, although the Chinese markets was poised to react to imminent releases on industrial output, retail sales and GDP and edged higher on hopes of positive upside surprises. Sentiment was also helped by a welcome boost to home prices as announced over the weekend, and the further support provided by the central bank, which maintained its stance on boosting general liquidity in the financial sector.
Initial reaction to the news led to a positive open in the UK, particularly the China effect which both bolstered mining shares as well as establishing something of a return to a risk-on approach. Defensive shares took a slight hit as a result, although the generally brisk opening kept the FTSE100 on the front foot and brought the cumulative gain for the year to a respectable 6.1%.
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The domestic barometer of the FTSE250 also edged higher, ahead of an important week for economic data, including releases on inflation, retail sales and employment. The UK economy continues to defy expectations of a technical recession and, while growth remains anaemic, the surprising resilience has lifted the index by 2.6% so far this year.
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