Market snapshot: mood music more positive

Wall Street just traded at a 2023 high and its best in almost nine months. Our head of markets reveals why and looks at UK performance ahead of the weekend.

Growing optimism for a resolution to the debt ceiling negotiations in the US lifted sentiment on Wall Street, although the mood was slightly tempered by question marks over the Federal Reserve’s next move on interest rates.

The mood music from the politicians involved in brokering a deal to raise the debt ceiling and avoid an unthinkable US default was more positive, with investors reacting with cautious optimism until such time as a deal is finalised. In the meantime, the subject is an unwelcome distraction as the market grapples with the economic direction of the US over the next few months.

• Invest with ii: Open a Stocks & Shares ISA | ISA Investment Ideas | Transfer a Stocks & Shares ISA

The weekly initial jobless data showed that fewer than expected citizens filed claims, suggesting that the labour market remains tight. The latest reading raises the conflicting issues of whether the economy is headed for a soft landing before the end of the year, but also how the Federal Reserve could react.

Indeed, comments from several policymakers over recent days have revealed that the Fed’s next decision will remain data driven, with more inflation data and a non-farm payrolls release both due before the next meeting in June.

Speculation had been that the Fed would choose to pause rate hikes at that meeting, but the central bank has clearly not got the memo. The possibility of a hike in June has edged higher, although the consensus remains stuck in the “pause” camp. At the same time, any hopes for an interest rate cut before the end of the year are diminishing rapidly as the spectre of inflation continues to loom large in the Fed’s thinking.

Even so, reassuring numbers from retailing bellwether Walmart Inc (NYSE:WMT) and the apparent progress in debt ceiling talks were sufficient to leave the main indices building on their gains in the year to date, with the Dow Jones now ahead by 1.2%, the S&P500 by 9.4% and the Nasdaq by 21.2%.

• Warren Buffett reveals his biggest holdings including UK’s Diageo
• How to beat the US stock market
• The US shares we own that will outperform Big Tech

Asian markets saw differing fortunes by region, as Chinese shares weakened on concerns around the strength of the economic recovery since the reopening. Recent data has been patchy and implies that some of the initial momentum may have been lost, raising the possibility that further intervention may be required from the authorities to address slowing growth.

By contrast, Japan’s Nikkei rose to its highest level since 1990, with its market currently enjoying the twin benefits of overseas investor interest and a string of robust corporate numbers.

UK markets also ticked higher in early exchanges, with a broad upswing in the FTSE 100, including something of a return to buying into the mining sector representing a risk-on approach, despite the faltering performance from China of late.

Nonetheless, the move higher was sedate in view of the rapid swings in sentiment which have been experienced over recent months.

• FTSE for Friday: time for some proper gains?
• 10 great UK shares that Warren Buffett would pick
• Six oil company share tips for 2023 and beyond
• 8 things you must know about building a retirement portfolio

Even so, the FTSE100 is now ahead by 4.1% in the year to date, with any number of economic releases in the UK which have surprised to the upside also lifting the more domestically focused FTSE250 by 2.5% in somewhat defiant fashion.

A positive and sustained trend has yet to be established in global markets, leaving the door open to further bouts of volatility as the battle with inflation lingers on.