Market snapshot: jobs and stimulus keep US inflation chat going

Inflation and interest rates will rise eventually, so potential causes are being watch very closely.

Improving news for the much anticipated global economic recovery is being tempered by accelerating inflation concerns.

In the US, the non-farm payrolls figure, which saw 379,000 jobs being added in February, was significantly higher than expected, with the unemployment rate also dropping to 6.2%. 

Over the weekend, the proposed $1.9 trillion fiscal stimulus package was approved by the Senate, while the rollout of vaccinations also continues apace. These combined factors point to the likelihood of strong growth momentum to come later in the year.

This in turn leads to the spectre of inflation and rising interest rates, although timing remains uncertain. The Federal Reserve maintains that neither inflation nor employment rates are near levels which would require intervention, whereas investors are looking to anticipate a tightening of monetary conditions which have propelled growth over recent times.

The main indices therefore remain finely balanced, with the Dow Jones ahead by 2.9% in the year to date and the S&P 500 by 2.3%. The tech-heavy Nasdaq index, in the firing line as the rotation away from growth stocks gathered pace last week, managed to claw back some ground and now stands ahead by just 0.2% in the year to date, and around 10% lower than its recent February high.

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Meanwhile, the oil price continued its surge after an attack on the heart of the Saudi Arabia oil industry raised production concerns, and came in addition to the agreed measures last week by OPEC to stem production. The price has risen 36% in the year to date, as these supply effects have been complemented by the expected resumption of demand as economies recover. The price hike also adds further fuel to the inflationary debate.

For the UK, sterling has recently levelled out which has left the door open for the FTSE 100 index to resume its progress. At the same time, the vaccination rollout programme remains on track and ahead of many of its global peers, with the government continuing to provide support until such time as the economy can be left to recover under its own steam.

The UK remains of interest to international investors on valuation grounds, even if the premier index is necessarily driven by global factors given the nature of its constituents. The FTSE 100 has risen by 3% so far this year, and the preponderance of mature businesses within the index could yet benefit from any general rotation out of growth towards value stocks.