Market snapshot: mood music mixed at start of new week

All eyes remain on any data that indicates what might happen next to interest rates and how high they might go. Our head of markets assesses latest developments and what's in store in the days ahead.

Investors remain temperamental amid conflicting economic signals, with this week providing yet another test of the general mettle.

US markets ended last week in positive territory, for the moment looking through the implications of more recent data which suggest that the Federal Reserve still has work to do in taming inflation by raising interest rates further. There was some relief following comments from a Fed member, which cemented the likelihood that the next rate rise will be 0.25%, suggesting at least that the velocity of rate rises could have peaked.

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Economic releases on Friday also provided some support, with ISM data showing the preferred mixture of healthy growth alongside slowing prices. The demand for services, despite the Fed’s action so far, could increase the likelihood of a soft landing even if rates could need to remain higher for longer to complete the central bank’s mission.

Apart from Fed Chair Jerome Powell’s comments this week in a two-day testimony to Congress, Friday looms large as the latest non-farm payrolls report falls due. Last month’s report rattled investors with a breathtaking addition of 517,000 jobs, and a further reduction to the unemployment rate, suggesting that the labour market is starting to show signs of immunity from the hiking cycle. However, expectations for February are more modest, with a consensus for 225,000 jobs to have been added, while investors will also have an eye on any revisions to the previous bumper reading.

For the moment, the Dow Jones has regained its poise and has moved back into positive territory for the year, now having risen marginally by 0.7%. While the mood music remains mixed, having undoubtedly changed since the optimism of January, the other main indices are comfortably holding onto to gains in the year so far, with the benchmark S&P500 up by 5.4% and the tech-heavy Nasdaq by 11.7%.

Asian markets were also broadly positive, despite some initial disappointment last week that the Chinese authorities chose a cautious outlook on growth of 5%, as compared to the 5.5% which investors had been anticipating. However, there are an increasing number of signs that the much awaited Chinese economic rebound is starting to gain traction following the lifting of restrictions, underpinned by sporadic measures of support from the authorities in an effort to hasten the rebound.

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UK markets were slow to the latest party, with a tepid opening which reflected a lack of immediate catalysts. Broker upgrades lifted both Tesco (LSE:TSCO) and Kingfisher (LSE:KGF) in early exchanges, with something of a read across to Frasers Group (LSE:FRAS), while Ocado Group (LSE:OCDO) and the miners slipped once more in the absence of investor support.

Even so, progress has been reliably steady so far this year, with the FTSE100 having risen by 6.5% and remaining one of the more favoured investment destinations of choice on the global stage.

The more domestically-focused FTSE250 is also up by 5.8%, regaining some ground from a torrid 2022 amid a number of releases which have tended to show surprising resilience from the beleaguered UK economy.