Market snapshot: investors face a stern test this week

US markets ended Friday on a positive note although down for the week, as investors now brace for a few days packed with potentially market moving events.

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The more recent strength of the main indices, while still largely intact, has been mostly driven by the strength of corporate America in what turned out to be a generally breath-taking earnings quarter. For the time being, however, such optimism has been eclipsed by events in the bond market, where the national debt and deficits have moved to the top of the investor agenda.

As largely expected, the intervention of the Treasury to attempt to halt the sell-off in bonds was initially effective given the surprise element, but any such benefit evaporated over the following days, leaving yields effectively unchanged from the move.

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Yields on the 10 and 30-year Treasuries, the so-called long end of the curve, have been under pressure due to both inflationary and deficit concerns, and each are close to highs not seen for 20 years. In turn, this adds to the debt burden in terms of higher interest rate payments while also elevating the cost of borrowing more generally. The intervention also helped to weaken the dollar, which resulted in a further spike in the gold price which traditionally has an inverse relationship with the greenback.

This week is set up to provide a stern test of investor mettle. An announcement is expected later from the US government on plans for a severe economic war on Iran, where sanctions have become the norm but other punitive measures are expected. Any retaliatory action from Iran could then put further pressure on the oil price, while also perhaps confirming that the US has decided to switch from military to economic force to achieve its aims.

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The remainder of the week throws several potential volleys at investors. A consumer confidence survey on Tuesday will provide the latest forward indicator on what is a vital cog in the US economic wheel, while on Wednesday there will be a GDP release as well as the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures index, which will likely confirm that the headline rate remains well above the 2% target.

After hours on the same day, NVIDIA Corp (NASDAQ:NVDA) releases its latest numbers where another set of blockbuster earnings seem almost guaranteed, but where the rising wall of expectations could limit any positive reaction and in any event seem likely to lead to a volatile market reaction.

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The week is then rounded off with the Jackson Hole symposium, where comments from new Fed Chair Kevin Warsh will be scrutinised. His address also comes with the possibility of disappointment in that investors will be searching for clues on the Fed’s current thinking, whereas he's already eschewed any such forward guidance other than the ultimate aim of reducing inflation. Leading into such a pivotal week, the performance of the main indices remains healthily intact, with gains of 10.8%, 12.1% and 12.6% for the Dow Jones, S&P500 and Nasdaq respectively in the year to date.

With such a weight of concentration on the multitude of US events this week, the UK opened as something of an investor sideshow. The FTSE100 once more hugged the flatline, with no discernible trends among an equilibrium of opposing forces as well as lighter volumes.

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There was some slight weakness in the likes of index heavyweight AstraZeneca (LSE:AZN) as will as GSK (LSE:GSK), despite the latter’s announcement of Japanese approval of its chronic hepatitis B treatment. JD Sports Fashion (LSE:JD.) continued its marginal revival after a punishing week where its share price was pummelled after a fresh profit warning and a disappointing outlook.

For the index as a whole, a sustained positive catalyst is proving elusive as investor attention is elsewhere, although a gain of 8.9% in the year so far is a resilient show of strength in response to its stable and defensive nature.