Market snapshot: mixed fortunes for major markets

Our head of markets explains why US indices just hit new highs and runs through the issues driving other global stock markets.

Strong economic data and a successful earnings season have combined to propel US markets to new record highs, as bullish investors remain in the driving seat for the moment.

Not only did the non-farm payroll figure comfortably outpace expectations, numbers from the previous months were also revised upwards, with the unemployment rate now standing at 4.6%. Participation rates were of more concern, given tightness in the labour market which is already filtering through to wage inflation.

Inflation overall remains a concern, and an update later in the week is likely to show continuing upward pressure. With speculation around the Federal Reserve’s tapering programme now put to bed, attention will inevitably turn to the pace and timing of any interest rate hikes, although the current expectation is that the first move could be towards the end of 2022.

In the meantime, the passage of President Joe Biden’s $1 trillion infrastructure bill added to the general optimism, while the strength of the earnings season has been an invitation to the bulls with most companies having beaten estimates, despite some strong comparatives. A positive announcement from Pfizer (NYSE:PFE) on a new Covid-19 pill also accelerated hopes of a quicker return to normality, with sectors ranging from airlines and hospitality to leisure all receiving a boost. In the year to date, the Dow Jones is now ahead by 18.7%, the S&P 500 by 25% and the Nasdaq by 23.9%.

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Overnight, markets in Asia saw investors taking a more circumspect stance. Despite China’s exports beating forecasts and resulting in a record trade surplus, imports missed estimates, suggesting a slowdown of domestic demand. Coupled with the other pressures that have more recently been troubling the economy, such as the rise in Covid-19 cases, power shortages and a shadow over the property sector, the route to normality seems less clear.

This uncertainty spilled over into the UK in early trade, as markets struggled for direction. Further strength in the oil price boosted the majors, miners crept into positive territory and airline-related stocks were also in demand in the face of potentially recovering international travel. Less positively, there was some pressure on banking stocks as the Bank of England’s inaction last week on interest rates undid some of the optimism which had been building on a potential boost to earnings.

Further colour is likely to be added to the current plight of the retailers this week, with updates from Primark owner Associated British Foods (LSE:ABF), Marks & Spencer (LSE:MKS) and Burberry (LSE:BRBY) each giving indications on the present attitude of consumers to discretionary spending and, indeed, how sticky the previous switch to online shopping is becoming.

Despite progress which has lagged its US rivals, the main indices in the UK continue to attract investor attention on valuation grounds, with the FTSE 100 having added 13% in the year to date and the more domestic barometer of the FTSE 250 15%.

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