Market snapshot: potential barriers to come in busy end to week

Despite caution ahead of a busy news period, stock markets are cautiously higher. Our head of markets explains what's happened and what to expect in the days ahead. 

Investors chose to sit on their hands ahead of an imminent flurry of economic and corporate news.

Wall Street ended Tuesday mixed, with the S&P500 flat, the Nasdaq posting a small decline and the Dow Jones a marginal gain. More cyclical stocks such as industrials and materials held up well overall, with some weakness in what has been a burgeoning tech sector this year taking some shine from some early trading session strength.

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The week now gets into full swing with the release of the Consumer Price Index later today. Estimates vary on the outcome of a release which will give the Federal Reserve further food for thought. The general expectation is that the CPI will have increased by 0.2% in March, as compared to a gain of 0.4% in February. But the core inflation number – which excludes energy and food prices – is estimated to have risen by 0.4%, and by 5.6% year-on-year.

Indeed, while it is clear that there is some cooling of the headline inflation number, attention is likely to turn to some of the underlying measures which have so far proved more difficult to budge, such as clothing, insurance and furnishings in addition to volatile energy and food levels. 

With this in mind, the consensus remains that victory in the fight against inflation has not yet been achieved, and that the Fed will hike rates by a further 0.25% in May, especially given the recent spike in the oil price and little more than a moderate labour market slowdown.

The jury remains out on what could happen thereafter, with the possibility of that rise marking the peak of the hiking policy, although the likelihood of rate cuts later in the year will be dependent on economic conditions at that time, and does not appear to be part of Fed thinking at the moment. 

Indeed, more clues on the Fed’s thoughts will be given with the release of the minutes from its latest meeting, also today. There is likely to be reference to the recent banking turmoil, although comments from one Fed member have already suggested that there are no signs yet of  business or consumer spending being influenced by tighter lending conditions.

In the meantime, and with the quarterly reporting season beginning in earnest this week and expected to show first quarter earnings declining by 5.2% compared to last year, markets have retained their poise. The Dow Jones is now ahead by 1.6% in the year to date, with stronger showings from the benchmark S&P500 and Nasdaq, which have spiked by 7% and 15% respectively.

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In the UK, markets also struggled for direction given the outcome from Wall Street and a mixed session in Asia, which was rather more focused on the geopolitical tensions around the situation in Taiwan. The FTSE100 moved higher at the open, with few moves of note from any particular stocks or sectors, but the index remains ahead by 4.7% in the year to date.

Whether the current lack of conviction is due to a feeling of calm before the storm remains to be seen. In any event, the remainder of the week is full of potential barriers to any further progress, and the next few weeks will prove equally informative as the quarterly reporting season unfolds on both sides of the pond.