Market snapshot: mixed fortunes for major indices

Investors cleared another hurdle as US inflation came in largely as expected, with thoughts now turning to the Federal Reserve announcement later today.

For the most part, the Consumer Price Index readings were in line with estimates, with the headline number rising by 3.1% and the core number, which excludes food and energy inputs, remaining at growth of 4%. On a monthly basis, the headline figure rose marginally by 0.1% against expectations that it would be flat, but overall the results are not seen as providing any reasons for the Fed to alter its current view of an economy which continues to defy the tightening to which it has been subjected.

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The current inflation picture will be completed after the release of wholesale numbers later, at which point the Fed will take centre stage as it reveals its latest interest rate decision. The consensus has priced in a no-change decision as being inevitable for some time now, but the accompanying comments will be the true focus of investor attention. In particular, any mention of potential rate cuts next year would be seized upon, especially since this is not something which the Fed has yet alluded. It has instead maintained that, based on the information before it, the base case remains that rates will remain higher for longer until such as victory can be declared in the fight against inflation.

Indeed, should the current resilience of the US economy continue for the time being, there is the possibility that the Fed will not need to cut rates at all next year. This would have a dampening effect on market sentiment, where the current view is that rates will begin a decline somewhere around the middle of 2024, predicated on a mild recession which is presently not in evidence. Either way, the Fed’s outlook will determine investor thinking in the shorter term, and will likely be market moving given the higher levels of optimism which have been building over the last couple of months.

In the meantime, the main indices continue to rally in anticipation of a more accommodative monetary environment being just around the corner. In the year to date, the Dow Jones index has added 10.4%, the S&P 500 21%, with the technology-heavy Nasdaq remaining the poster child of the recovery having jumped by 39%.

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In Asia, the picture remained mixed with further market pressure emanating from China. An annual economic conference fell short of investor hopes for a targeted fiscal stimulus, even though there were pledges to focus on tech innovation through the likes of the digital economy and AI to fuel future growth. More positively, the possibility of actions to tackle the country’s real estate crisis and boost demand provided some solace. Even so, the mainland market slipped once more as the highest of hopes evaporated for the time being.

In the UK, Storm Babet was held up as part of the reason for a decline of 0.3% for the economy in October, hitting tourism and retail in particular. The decline compared to a marginal gain the previous month and inevitably begs the question of whether the interest rate hikes hitherto are now having the desired effect of strangling demand. The Bank of England’s next rate decision tomorrow should clear up some of the uncertainty, notwithstanding that today’s GDP release is another example of driving in the rear-view mirror as opposed to giving real-time direction. The news was well received in terms of the possibility of rate easing now being on the cards, despite the increased concerns of possible recession, with the domestically focused FTSE 250 continuing its recent recovery, although the index remains down by 0.7% so far this year.

The premier index was marginally stronger at the open, despite being pegged back by the likes of WPP (LSE:WPP) and Anglo American (LSE:AAL), which were both subject to broker downgrades. The move around the flatline has become endemic of late, as the UK continues to disappoint as an investment destination for overseas buyers. The FTSE 100 has now eked out a gain of 1.3% this year, in stark contrast to some of its global peers and with limited growth appeal apparently on the immediate horizon.