Market snapshot: investors kicking their heels

Investors are currently kicking their heels ahead of next week’s Federal Reserve decision on interest rates, with little interim data available to move the dial.

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Lesser watched employment releases on Thursday suggested that the labour market may be in slightly better shape than expected, although the odds are still high for a cut next week. After a surprise slump in private payrolls on Wednesday, yesterday saw jobless claims at their lowest level since September, coming in at 191,000, down from a previous 218,000 and below the 220,000 consensus.

With the December rate cut apparently in the bag, thoughts are turning to the pace and level of subsequent reductions next year, especially with the appointment of a potentially dovish new Fed Chair. Inflation remains the elephant in the room, however, and the Fed’s hitherto cautious stance on monetary easing has so far been vindicated.

Indeed, the delayed September inflation reading will be released today. The Personal Consumption Expenditures (PCE) index, which is the Fed’s preferred measure of inflation, may well reveal that prices remain slightly higher than the Fed’s 2% target. However, given the age of the data, any numbers may prove to be inconclusive and insufficient to change the central bank’s current thinking. A closely followed consumer survey for December may garner rather more attention, particularly being in the midst of the festive season with Black Friday and Cyber Monday fresh in the mind.

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In the meantime, the main indices continue their march, albeit at a slower pace. The Dow Jones has added 12.5% so far this year, while the S&P500 is up by 16.6% and approximately 0.5% away from its recent record high. The Nasdaq index remains at the vanguard, with a gain of 21.7% which has been largely driven by mega cap technology strength.

Asian markets were mixed overnight, similarly at the mercy of thinner trade. The Nikkei 225 is currently taking a breather after setting several new records of its own this year, and was slightly down as household spending fell by 3% year-on-year, below market expectations and throwing up some questions around the Japanese central bank’s likely monetary policy tightening cycle.

In China, meanwhile, investors are braced for some policy signals which may emanate from a round of high-level authority meetings, with some important economic data to come next week in the form of inflation through trade and producer prices.

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The mood in the UK was similarly uninspiring at the open, as investors searched in vain for any emerging positive catalysts. Rolls-Royce Holdings (LSE:RR.) shares rose on the back of a broker upgrade to offset some of its more recent weakness, which had followed some disappointment last month over the lack of a new share buyback programme and some below-target flying hours. However, the wobble has done little to derail a share price which has risen by 89% this year, as the broad defence sector has seen the benefit of heightened geopolitical tensions.

The cautious buying approach lifted the mining sector, which has enjoyed its own stellar performance this year. The limited risk-on reversion extended the FTSE100’s gains to 19.1% in the year to date and some 1.9% shy of the record closing high it recorded last month, with investors increasingly primed for any events which could round off the year in positive fashion.