Market snapshot: investors wait for latest signal of economic health

Our head of markets Richard Hunter comments ahead of the release of arguably the most closely watched set of global economic data.

The latest signal of economic health will be revealed today, as investors await the release of the non-farm payroll figures with bated breath.

In any given month, the release is arguably the most closely watched set of global economic data. This month’s report will take on added significance following the previous release of US GDP data, which confirmed two quarters of contraction. While not a technical recession, since the US measures a recession by different means to many other countries, one of the additional factors is the state of the labour market.

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The consensus is that 250,000 jobs will have been added in July, as compared to 372,000 in June, with the unemployment rate unchanged at 3.6%. Given the continuation of aggressive Federal Reserve interest rate policy, though, investors will be looking under the bonnet away from these headline figures for other clues. The average hourly earnings rate, for example, could provide further inflationary pressure in the event of a strong reading.

If the consensus comes through at the expected number, there could be another period of investor lethargy until some signs of a slowing labour market are in evidence. Until that time, the possibility of further Fed tightening remains very much on the table, with the time lag between interest rate rises taking effect and the market trying to anticipate the state of the economy several months ahead providing scope for further volatility.

In the meantime, the earnings season so far has been a relative success, albeit propelled by some outlook comments, which quite simply have been less pessimistic than expected. Concerns will now inevitably switch to the third quarter, with the impact of a tightening monetary environment potentially taking hold, squeezing margins and potentially putting a further dent in consumer confidence.

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The main indices have made up some lost ground more recently given the slightly better-than-expected backdrop, although the more recent performances remain weak. In the year to date, the Dow Jones has now slipped by 10%, the S&P 500 by 13% and the Nasdaq by 19%.

Elsewhere, the potential for a global slowdown and a temporary excess of supply has put the brakes on the energy sector. While the oil price remains ahead by 22% in the year to date, a possible draining of demand, as currently being seen in the traditionally busy US driving season, for example, has halted progress for the time being.

The FTSE 100 has opened in tentatively negative fashion, following a fairly flat Wall Street performance and despite a slightly more upbeat showing across Asian markets. The UK’s premier index remains a rare beacon of light in global terms, having added 0.8% in the year to date, underpinned by a mix of strong overseas earnings, a selection of defensive options and the rise in energy prices. The FTSE 250 has taken the brunt of concerns on UK economic prospects, however, being a more representative domestic index, and currently stands down by 14% in the year to date.