Market snapshot: momentum stalls as investors await rate clues

Market momentum stalled in the US in the immediate absence of any more economic clues, although the remainder of the week looks likely to plug that gap.

Federal Reserve Chair Jerome Powell is set for a two-day testimony to Congress, during which he is likely to double down on the central bank’s data dependent policy.

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The most recent data has placed a large question mark on the shorter-term future for interest rates, with the economy continuing to confound and possibly even in a position to avoid a recession which had previously been taken as read. The strength of the economy is also causing some inflationary pressures of its own, pouring further cold water on the market’s estimates at the beginning of the year that six cuts were in the pipeline.

That number now seems to have settled at three, with the first cut being priced in for June, although at the present time there seems little evidence to suggest that the Fed should be hasty in any monetary easing. There are a number of data points this week which will give clues on the current state of the nation, culminating in the widely-watched non-farm payrolls report on Friday.

In the meantime, stocks were mixed to lower, with differing fortunes for parts of the vibrant technology sector. Apple Inc (NASDAQ:AAPL) shares lost more than 2% following an antitrust fine from the European Union, while Tesla Inc (NASDAQ:TSLA) shares slipped by some 7% after announcing slowing activity in China as well as the need for fresh price discounts and incentives.

These drops were mostly offset by further strength in the current market darling NVIDIA Corp (NASDAQ:NVDA), where shares added over 3% and a sharp surge in Super Micro Computer Inc (NASDAQ:SMCI) after the announcement that the stock would be joining the S&P500, which in itself is likely to attract further buying interest from tracker funds in particular.

The pause for breath did little to upset the gains made across the major indices in the year to date, with the Dow Jones still ahead by 3.4%, the S&P500 by 7.6% and the Nasdaq by 8%.

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Asian markets were similarly cautious, with particular attention turning to China’s latest update on its own immediate projections. The government replicated last year’s economic growth target of around 5% for the forthcoming year, with plans to run a slightly smaller budget deficit.

However, the absence of any measures designed to bolster the economy in terms of stimulus was poorly received, putting pressure on the local markets. The weakness in pockets of the economy, most notably the beleaguered property sector, is well-known and it increasingly appears that the authorities are content for natural economic growth to override any shorter term fiscal boosts to repair the economy.

In addition, the ever-present threat of escalating geopolitical tensions with the US are having an effect on the technology sector, where mutual sanctions are proving increasingly counterproductive. This has led to an investment exodus from the region, latterly mostly in the direction of Japan’s Nikkei index, which continues to test fresh record highs as the market enjoys its own day in the sun.

Given the tepid movements from overseas, UK markets also opened on the back foot in the absence of any positive catalysts.

An industry report showing that retail sales had risen by the slowest pace since August 2022 inevitably dragged on relevant stocks, such as Kingfisher (LSE:KGF), Burberry Group (LSE:BRBY) and Ocado Group (LSE:OCDO), while the subdued outlook from China weighed on some mining stocks both in terms of immediate demand, as well as prompting a risk-off approach from investors.

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Mixed earnings reactions resulted in a sharp drop for Ashtead Group (LSE:AHT) shares, and a reasonable spike for Intertek Group (LSE:ITRK). Overall, however, the FTSE100 has been unable to track the recent strength of many overseas markets, and is currently down by 1.6% so far this year.

There was also a further example of UK companies as bid targets given the currently undemanding level of valuations, which has led to a number of acquisition approaches over recent weeks.

In the FTSE250, telecoms testing company Spirent Communications (LSE:SPT) announced that it had accepted a £1 billion bid from Viavi Solutions of the US, sending its shares higher by 60%. The news provided some brief support to the index, which itself has now fallen by 2.3% in the year to date.