Market snapshot: measured progress ahead of crucial period for stocks 

Latest data shows interest rate rises are having the desired effect on the economy, but the upcoming quarterly results reporting season has just taken on extra significance. Our head of markets explains why. 

Markets generally made measured progress overnight, although the fallout from the surge in the oil price tempered sentiment.

In the US, the potentially inflationary effect of a higher oil price, prompted by surprise production cuts being announced by OPEC+, added to concerns that the Federal Reserve could be tempted to maintain its rate hiking policy.

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The tech-heavy Nasdaq index, which has been the bearer of good news for investors this year in anticipation of a pause in the hiking cycle, slipped slightly at the close but nonetheless remains ahead by 16.5% so far this year.

More positively for investors keen to see an end to the monetary tightening environment, other economic releases suggested that the policy is beginning to take hold. US manufacturing activity dipped to its lowest level in almost three years in March, with new orders slumping amid the possibility of further falls if the expected credit tightening from banks washes through. This could have a particular impact on the important auto market in the US, where cars are largely purchased on credit, and more broadly could dampen big ticket purchases.

In addition, US construction spending also showed signs of recent weakening, which adds to the growing consensus that the economy could be heading for a slowdown, although the severity of any resultant recession cannot yet be measured. This adds extra importance to the impending first-quarter reporting season, which kicks off in earnest towards the end of next week as the banks come to the stand.

The impact of the recent banking turmoil will be a primary focus, alongside interest in outlook comments, including any deterioration in credit conditions and loan defaults arising from the heightened rate environment.

In the meantime, the other main indices made progress on the possibility that the economic stars are beginning to align, and modestly brisk sessions for both the Dow Jones and the S&P500 in the first day of the new quarter left the indices ahead by 1.4% and 7.4% respectively in the year to date.

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Asian markets were more guarded given the elements which could work against the region being largely out of their own control, with the spike in the oil price, partly driven by potentially falling demand, adding to the mix.

While much of the heavy lifting in the region is still expected to come from the strength of the Chinese recovery following the reopening of its economy, pockets of doubt still remain such as the strength or otherwise of the property sector.

Despite some further strength in sterling which tends to hamper the primary index given its heavy exposure to overseas earnings, the FTSE100 traded higher in early exchanges, with broad based gains across several sectors.

The resilience of the index has inevitably been tested over recent months given wider global volatility, but has recovered some ground in the last few days having found some investor favour and is currently up by 3.7% so far this year.

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Even so, there remains some way to go in emulating the all-time high above 8,000 which the index breached in February, with the impending quarterly reporting season also taking on real significance for investors over the next few weeks.

The domestic barometer of the FTSE250 has also nudged back into positive territory for the year, although the cumulative rise of just 0.6% leaves prospects finely balanced.