Market snapshot: investors want answers to these big questions

There are any number of concerns for investors right now, and lots to be thinking about on Monday morning. Our head of markets rounds up latest developments in Asia and looks at some of the big events this week.

A sprightly finish was not enough to prevent losses for the week in US markets, where the Federal Reserve’s unwavering rate stance scuppered optimism that the pace of hiking could ease, leaving investors still searching for clarity.

The non-farm payrolls number muddied the waters further. The headline figure of 261,000 jobs added was comfortably in excess of the 200,000 which had been expected, and provided further fuel to the Fed’s strategy.

On the other hand, there was perhaps a glimmer of hope for some easing in the jobs market, where the unemployment rate rose to 3.7% from 3.5%, and above the forecast 3.6%. While the rise was marginal, it is the hiking cycle which is currently holding back any possibility of a market recovery, and so any signs of the effects of rate rises becoming entrenched is being keenly sought.

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The tech-heavy Nasdaq index in particular continues to carry the rate burden, comprising many stocks which are particularly sensitive to higher borrowing costs, and is now down by a third in the year to date. The S&P500, also with a significant exposure to big tech, has retreated by 21%, while the more broadly based Dow Jones has lost 11%.

The next signpost for investors to consider will be the latest consumer price index report later in the week, where inflation is expected to slow to 8%, and core inflation to 6.5%. While the figures remain elevated, the fact that wage inflation showed some signs of deterioration in the non-farms could ease some of the general inflationary pressure.

At the same time, political considerations will also be in focus, where the mid-term US elections could potentially result in a deadlock on fiscal policy depending on the outcome, which would add another level to investors’ current wall of worry.

China - 'will they, won't they?' saga continues

Asian markets lost some steam as Chinese authorities denied that it was considering easing its zero-tolerance Covid-19 policy. Stocks had seen a strong bounce, with commodities in particular flying higher on hopes of increased demand, with copper, an accepted measure of global health, rising by 7% towards the end of last week. Despite the statement from the authorities, it is believed that the continuing weakness of the Chinese economy could yet prompt an easing of the policy in the New Year.

Such hopes seemed to be underpinned by economic data which missed forecasts and showed contraction. Exports fell by 0.3% and imports by 0.7% in October, against expectations of increases of 4.3% and 0.1% respectively. The resultant mixed performance across Asian markets was therefore unsurprising given the mixed messages.

The Chinese denial also set the tone in the UK, where the FTSE100 had seen a strong end to the week, buoyed in particular by mining stocks following the previous hopes of resurgent demand in commodities.

In early exchanges, the miners gave up some of those gains which helped pull the index lower, given its significant exposure to energy in general, while Asian-focused companies also saw some weakness. The energy exposure has been something of a blessing and a curse this year on wavering prices and potential demand, although overall a loss for the FTSE100 in the year to date of just 1% remains a robust performance in comparison to many global peers.

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The same cannot be said for the FTSE250, however, where comparisons are inevitably drawn with prospects for the UK economy. GDP numbers at the end of the week could well confirm recession, amid an environment where the Bank of England has shown few signs of moderating its own aggressive hiking policy, despite the underlying lethargy and lack of growth.

Now down by 22% in the year to date, the FTSE250 unfortunately remains the main barometer for an ailing UK economy.