Market snapshot: a late comeback for US markets ahead of big week for retail

The recent blow-out number from the non-farm payrolls report and the potential for inflation having peaked is raising investor hopes for an economic soft landing, as opposed to a recession, says our head of markets.

Amid signs of a flagging Chinese economy, US markets staged a late comeback to record another session of gains.

The recovery was achieved despite some indications of a slowing economy in the US, which could partially be the result of recent Federal Reserve monetary tightening. New York factory activity fell to a pre-pandemic low, while a survey of homebuilders’ confidence revealed sentiment which had turned negative this month, as builders and indeed buyers battle against generally higher costs.

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However, the recent blow-out number from the non-farm payrolls report and the potential for inflation having peaked is now raising investor hopes for an economic soft landing, as opposed to a recession. Thus far, while various data points have shown some signs of weakness, the economy as a whole seems to be robust enough to withstand the monetary pressures being faced.

In addition, the big retailers report this week, which will bring the curtain down on the current reporting season. For the most part, companies have emerged relatively unscathed from what was expected to be a difficult round of numbers, with outlook comments emanating from boardrooms showing caution rather than despair for the coming months. It is possible that earnings may need to be revised given the current state of the economy for the third quarter, but for the moment corporate news has been relatively positive.

The main indices continue their incremental moves to repair some of the damage wreaked earlier in the year, although there remains some way to go. In the year to date, the Dow Jones is down by 7%, the S&P 500 by 10% and the Nasdaq by 16%.

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This investor defiance did not reach Asian markets, however, where a generally mixed performance resulted from the previous examples of a faltering Chinese economy which prompted the central bank to cut rates. However, the scale of the cut is seen to have limited impact on reviving the economy, although it could also signal that the authorities are prepared to take further stimulative action should the need arise. In the meantime, the zero-tolerance policy from Beijing on Covid-19 and an uncertain outlook for commodity demand have spilled over into other asset classes.

Even so, the FTSE 100 again showed its mettle in the face of an uncertain economic outlook at home and abroad, and ticked higher in early exchanges to stand ahead by 2% in the year to date. The index has become relatively fashionable in this challenging inflationary environment and remains underpinned by valuations which are still undemanding in relative terms to many global peers.

Miners forged ahead as a read across from some strong BHP Group Ltd (LSE:BHP) numbers emanating from Australia, while an acquisition announcement from GSK (LSE:GSK) kept the pharmaceutical momentum going following the previous positive drug news from AstraZeneca (LSE:AZN).