After helpful comments from America's top central banker, US stocks racked up another record high. Our head of markets explains.
The balanced rhetoric from Jackson Hole, which had both assuaged and reassured investors, continued to support sentiment into the new week, sending the S&P500 and Nasdaq to further record closing highs.
Federal Reserve Chairman Jerome Powell walked a potential tightrope with aplomb, reiterating previous thoughts around a labour market which has to fully recover and the limitations which the Delta variant places on the recovery. At the same time, he acknowledged that at current rates of growth, tapering may yet begin before the end of this year, but implied that any tapering would be a separate decision from considering a rise in interest rates.
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The Dow did not participate in the rally on Monday, hampered by weaker financial shares. There was also concern around the economic impact of Hurricane Ida, particularly in terms of oil and gas production in the affected areas, as well as the potential costs of reparation as seen in previous instances.
Even so, markets remain in rude health overall in the US with the Dow Jones having added 15.7% in the year to date, the S&P500 20.6% and the Nasdaq 18.5%.
Asian markets were in less buoyant mood as increased regulation and fears of slowing economic growth in China continued to weigh. Factory activity expanded at a slower rate in August, with higher raw material prices given supply chain disruptions and certain lockdown restrictions in the region impacting, as well as a weaker services activity reading.
UK markets returned after an extended weekend in reflective mood, given the mixed messages from the world’s largest two economies.
More positively, a survey reported a surge in UK business confidence given the more recent effects of the release from lockdowns and the success of the vaccination rollout, allowing businesses to regroup to somewhere nearer to pre-pandemic levels. Elements of caution remain in terms of labour shortages and inflation, but for the most part UK corporates are optimistic that the momentum of a recovering UK economy will continue for the rest of the year.
Early exchanges after the market opening included some weakness in the banks and also airline and related stocks, given the ongoing uncertainties around a full resumption of international travel. Nonetheless, UK markets also remain in positive territory in the year to date, albeit at more sedate levels of growth than their US counterparts, with the FTSE100 ahead by 10.8% and the FTSE250 by 17.4%.
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