Market snapshot: investors braced for today’s crucial data

US investors cast an eye overseas on interest rate developments in anticipation of a crucial economic release today which could prove pivotal in deciding their own direction.

With the European Central Bank (ECB) joining Canada, Sweden and Switzerland in cutting rates and beginning the easing cycle in developed markets, speculation will now return to the timing of the first Federal Reserve cut, currently believed as most likely to happen in September.

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Recent economic data, especially within the labour market, has shown signs of stalling, which adds particular significance to today’s non-farm payrolls number. The readings have tended to confound expectations of late, and whatever the result, the number will likely move the market.

A significantly lower figure than expected could reignite concerns of a hard landing, whereas a particularly strong number would play to the narrative of the Fed’s previous assumption that rates would remain higher for longer and likely beyond September.

The current consensus is that 185,000 jobs will have been added in May, as compared to 175,000 in April and 315,000 in March. The unemployment rate is expected to remain unchanged at 3.9% and, ahead of the release, the market is still expecting two rate cuts this year, which adds to the finely balanced and increasingly important level which will be revealed later.

In the meantime, investors sat on their hands in the latest trading session, with each of the main indices largely unchanged on the day. This comes after fresh record highs were hit earlier in the week, again largely driven by exuberance around the potential for AI technology and, in the year to date the Dow Jones is ahead by 3.2%, the S&P500 by 12.2% and the Nasdaq by 14.4%.

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Asian markets retrenched from the previous session’s positive technology focus to post mixed performances based on local issues. 

In Japan, the Nikkei eased slightly ahead of next week’s monetary policy meeting at the Bank of Japan, while household spending showed a marginal gain, albeit tempered by some caution on the economic outlook. China also fell into weaker territory after further fractious noises from the US on Chinese battery companies unsettled investors, overshadowing some more positive news that exports had risen more quickly for a second consecutive month in May.

In the UK, there was limited progress in opening exchanges, with investors similarly attuned to the outcome of the non-farms figure later. The FTSE 100 was largely flat but remains ahead by 7.1% in the year to date, cementing something of a return to form as the UK has been seeing some interest from overseas as an investment destination after some considerable time in the wilderness. Meanwhile, the FTSE 250 paused for breath after a recent run which has left the index up by 5% so far this year.

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Within the more junior index, Bellway (LSE:BWY) released numbers which added to hopes that the housebuilding sector is finally turning a corner. It reported stronger trading throughout the spring selling season, adding that it was now fully sold for this financial year. A healthy order book added to the mix, whereby customer demand has seen the benefit of an improvement in affordability and the likelihood of easing interest rates over the coming months.

The trading statement adds further froth to the increasing optimism which has been typified by the recent promotion of Vistry Group (LSE:VTY) to the FTSE 100 and the performance of the UK housebuilding sector as a whole, which has risen by 9% in 2024 and by 27% over the last year.