Market snapshot: plenty for investors to track this week

Many markets are either shut for Chinese New Year or National Day in Japan, while schools in Europe begin half-term breaks. But there's still lots going on, as ii's head of markets reports.

12th February 2024 08:19

by Richard Hunter from interactive investor

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US markets continued their onward march, with the S&P500 setting another record and closing above 5,000 for the first time.

A powerful combination of strong earnings, resilient economic growth, easing inflation data and the potential for monetary easing have all heightened investor expectations.

There may be some concern that the rally remains too narrow with the so-called “Magnificent Seven” continuing to have a disproportionate impact on the gains, while more questions may also be asked on the simple basis of valuations as markets edge higher.

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The earnings season so far has set a solid foundation for the gains, with an estimated 80% of the two-thirds of the S&P500 who have reported having beaten expectations, a figure which is comfortably above the long-term average.

Alongside encouraging economic news, there are increasing hopes that a US recession may be avoided entirely, while also providing the Federal Reserve with additional firepower to relieve monetary policy as and when required. There are limited signs that the need for interest rate cuts is pressing at the moment.

Another week of releases should provide further colour. The Fed’s preferred gauge on inflation, the Consumer Price Index, is due tomorrow and follows a moderate downward revision to December’s figure at the end of last week. In addition, retail sales, PPI and housing starts will fill in some more gaps on the current economic outlook.

In the meantime, each of the main indices are in positive territory for the year, with the Dow Jones having added 2.6%, the S&P500 5.4% and the Nasdaq 6.5%.

Asian markets are set to have a lesser impact on global sentiment for the time being, with Japan closed today and China for the week due to public holidays. Japan, which has been testing highs not seen since 1990, will provide its latest update on economic growth for the final quarter of last year on Thursday.

There will be rather more to capture investors’ attention in the UK this week, as unemployment, inflation, retail sales and economic growth will all be updated, providing a reasonably comprehensive overview to the state of the economy at present.

The more domestically focused FTSE250 has struggled hitherto, down by 3.2% so far this year, while hopes for any interest rate cuts from the Bank of England now seem to have settled for August in terms of market consensus.

NatWest Group (LSE:NWG) will kick off the UK banks’ full-year reporting season on Friday. There is much going on at the group, with an ongoing search for a replacement CEO and the possibility of the sale of the remaining government stake to retail investors capturing the headlines.

In the meantime, the high street lender's results will be scrutinised for any signs of an increase in customer defaults should further credit impairments be implemented. The expected strength of the balance sheet could also result in another set of punchy shareholder returns, either through share buybacks or an increase to the dividend payment.

Ahead of this busy week, the FTSE100 index hovered around flat in opening exchanges, helped along by a gain in Frasers Group (LSE:FRAS) after the group launched a share buyback programme and some bargain hunting in Burberry Group (LSE:BRBY) after a torrid period which has seen the share price decline by 42% in the last six months alone.

Index gains were capped by some weakness in NatWest ahead of their results, as well as two broker downgrades to AstraZeneca (LSE:AZN), leaving the FTSE100 to continue lagging peers and down by 2.1% in the year to date.

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