Market snapshot: mixed messages, mixed movements
13th February 2023 08:39
by Richard Hunter from interactive investor
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Stocks are trading cautiously Monday as investors consider both economic issues and geopolitical tensions. Our head of markets runs through the main talking points.
Mixed messages are resulting in mixed movements as investors ponder the continued resilience of the US economy.
A renewed spike in Treasury yields implied higher interest rates to come, taking some of the froth from the high growth companies which have seen renewed interest of late. Despite its poorest showing last week since December, the Nasdaq nonetheless remains ahead by 12% in the year to date, in an effort to wipe out the hefty losses of 2022.
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The other main indices are also net positive this year, with the Dow Jones up by 2.2% and the S&P500 by 6.5%. Hopes of a softening of aggressive central bank interest rate hiking has been a major focus, with inflation showing some signs of being at or near to a peak.
This week provides a further acid test with the release of consumer inflation data on Tuesday, The consensus is for the rate to have risen by 0.4% for the month, although ahead of the release, upward revisions to the November and December figures unsettled investors who were assuming that the battle with inflation was all but over. However, the recent blowout non-farm payrolls number and stubborn inflation within the services sector are reintroducing question marks over the extent of the progress made so far.
Another important indicator later in the week revolves around the vital US consumer, as retail sales numbers are released. These are expected to have rebounded slightly and in a separate report US consumer sentiment improved further in February, despite the backdrop of inflationary pressure. Taken together, the inflation and retail sales prints are likely to dictate sentiment in the immediate short term.
The company reporting season is now beginning to wind down, with an estimated 70% of corporates having beaten estimates. However, this comes against lower expectations, a smaller percentage than the historical average, and with earnings generally having fallen. An increase in cautionary outlook comments from boardrooms has also added to the uncertainty surrounding the actual effect of Federal Reserve actions to date, and whether the economy is standing firm or beginning to wilt as a result.
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Asian markets continue to pin their hopes on an economic recovery in China which would lift many of the region’s woes. There has already been some evidence of resumed consumer activity, while some policy support measures have been announced for the real estate sector, both of which could underpin an economic rebound. In the meantime, there are other factors affecting nearer term sentiment, as the latest reports from the US indicate that another unidentified object had been shot down in a reminder, if it were needed, of simmering geopolitical tension between the two countries.
In Japan meanwhile, markets remained generally positive although the Yen was volatile after reports of the potential appointment of a new central bank governor raised the debate over whether this would be a hawkish development for an economy also battling with inflation.
In the UK, the main indices faced slightly differing fortunes in early trade. The FTSE100 edged ahead, bolstered by a noticeable switch towards defensive companies by investors. Such a fallback option has served the UK’s primary index well over the challenges of the last year as investors hunker down in the face of potential recessionary and particularly inflationary pressures.
The market’s initial move higher was achieved despite another small raid on the housebuilding sector where rising interest rates, concerns over mortgage availability and affordability and recently cautious comments from some of the leading names have added to the mix. Even so, the FTSE100 remains ahead by 6% so far this year and still one of the favoured global investment destinations.
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The more domestically focused FTSE250 was largely flat in early trade, ahead of a week which will see further UK releases on unemployment, inflation and retail sales. If these figures and indeed the outlook can continue to be less disastrous than some had feared, this index could also add to the gain of 6.2% which it has achieved so far this year.
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