Market snapshot: investors look to new data and results season

US inflation numbers did little to move the needle Thursday, leaving each of the main indices virtually unchanged after a choppy trading session.

Although higher than expected, an annual rate of 3.4% compared with 3.1% in November, with core inflation coming in at 3.9% against estimates of 3.8%, although the latter eased from 4% the previous month.

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There will be an additional clue today following the release of the producer price index, but for the moment these figures suggest that the gulf between market expectations for rate cuts and the Federal Reserve’s stated stance remains in force.

Quite simply, the economy is showing few signs of capitulation across most economic data, from the labour market to the consumer. As such, there is less pressure on the Fed to ease monetary policy and it will be mindful of cutting rates too early as has happened in the past. The debate therefore continues, with the market increasingly conceding that a March rate cut is slipping off the table.

The clash between investor and Fed thinking led to a relatively volatile session, with an improvement towards the close which saw the S&P500 briefly exceeding its previous record closing high.

With inflation not yet tamed, company earnings will need to take on the mantle if the current level of stock valuations are to be justified. The reporting season starts in earnest today, with numbers from the likes of Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) expected to reflect a generally healthy consumer. At the same time, there could be some unwelcome surprises in the form of credit impairments for the next few months, while margins will also be under scrutiny given the recent volatility in bond yields.

Going into results season, and while still early days, the Dow Jones is broadly unchanged in the year to date, the S&P500 is up by just 0.2%, while the Nasdaq has drifted lower by a marginal 0.3%.

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Asian markets had mixed fortunes as the disparity between the fortunes of China and Japan were demonstrated once more. In China, a rare piece of good news came from a better-than-expected rise in exports, although the threat of deflation was underlined once more by a dip in consumer prices for a third consecutive month. This continuing decline suggests that consumers are holding back, either because sentiment is fragile or alternatively because they expect prices to fall further and are therefore delaying spending.

While hopes still remain that some stimulus may be on the cards to revitalise the economy, there are no such concerns in Japan, where the Nikkei has risen by almost 5% this week to take the benchmark above 35,000 and at its highest level since 1990. At the same time, its loose monetary policy remains the subject of some debate, although the latest signs seem to suggest that given the data, the Bank of Japan is content to stay put.

In the UK, there were some hopes of an economic reprieve as the economy grew by 0.3% in November, above expectations and following a dip the previous month. The services sector helped the overall number, while the strength of computer games and retail could have been related to festive purchases being brought forward. Even so, in the three months to November the economy contracted by 0.2%, which keeps the possibility of a recession unfortunately alive.

The news gave a boost to the more domestically focused FTSE250, although the index has slid by 2.2% in the first couple of weeks of trading in the new year.

The premier index also opened with a sprightly step, adding 0.8%, although also unable to arrest the harm of the last few trading sessions, leaving the FTSE 100 trailing by 1.2% in January.

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The index was held back by a trading update from Burberry Group (LSE:BRBY) which was released early, and was accompanied by a lowering of the group’s guidance. The shares fell by some 9% in early trade.

Some solace was found in the housebuilders following recent releases implying that demand may be beginning to return, with Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.) moving higher. There was also an uptick in certain selected miners, suggesting that some traders could be taking the opportunity to buy on the dip with a potential uptick in global demand later in the year in mind.