Market snapshot: October memories fading as relief rally takes hold

After a dismal October for markets, November has opened with a different narrative and a very different performance.

That the Federal Reserve held rates this week was no surprise, but the accompanying comments from Chair Powell lit the fire under stocks, with a noticeable fall in Treasury yields providing further fuel. While leaving the door slightly ajar to further rate rises should inflation unexpectedly tick higher once more, sentiment has switched to the belief that the hiking cycle is now over.

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Economic data yesterday seemed to confirm the newly found market confidence, with signs of easing inflation via lower labour costs, and an uptick in weekly jobless claims. Attention now turns to the pivotal non-farm payrolls report later today, where it is expected that 180,000 jobs will have been added in October, as compared to 336,000 the previous month and with unemployment remaining at 3.8%.

As ever, the headline number will be critical in establishing the latest state of play. A reading which conforms to consensus will provide further relief both to the Fed and to investors, while a hot reading would complicate the entire narrative once more, likely leading to higher yields and reigniting interest rate hiking concerns.

Even so, for the moment markets are basking in a relief rally after a torrid few weeks. The quarterly reporting season is nearing its end and, for the most part, company updates have been reassuring. The outlook comments may have been a little more guarded which could also play into a slowing economy and hopes for a soft landing, but the results themselves have seen a success rate of over 80% in terms of companies beating expectations.

The decline in Treasury yields has also provided a look-through to potentially easing monetary conditions, since they tend to be a guideline for borrowing rates for both consumers and businesses. Such an established trend would also put equities on a much firmer footing, while relieving some of the pressures which investors have recently faced. The strength of the market over the last couple of days has lifted the Dow Jones back into positive territory for the year, now up by 2%. The S&P500 and Nasdaq stand ahead by 12.5% and 27% respectively so far this year.

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Asian markets rallied strongly following the positive wave from Wall Street, despite a Chinese economy which continues to display signs of weakness. Although the latest services industry survey slightly improved, data from the manufacturing sector and retail sales echoed the sluggish performance and sentiment which has beset the market over recent months. The relative inaction from the Chinese authorities to provide sustained and powerful stimulus has left some international investors exasperated, and heading out of the region.

UK markets have also seen something of a relief rally over the last couple of trading sessions, with the possibility of easing economic pressures providing an excuse for the some of the money which had been stranded on the sidelines to return to the fray.

The FTSE100 has also swung back to positive territory in the year to date, albeit only marginally ahead by 0.3% and a considerable way from the heady record highs recorded in February. In early exchanges, a tentative return to risk-on trading was exemplified by interest in the mining stocks, while a potentially stabilising backdrop provided a boost to the banks after its largely forgettable recent reporting season.

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The FTSE250, meanwhile trails by 5.2% so far this year. Despite a number of surprisingly resilient economic outputs and the latest decision by the Bank of England to hold fire on further rate rises for the time being, the tepid levels of growth leave the immediate future of the UK economy in doubt, with investors unable to shake off the possibility of a recession in the near future.