Market snapshot: pressure build-up forces shares lower

The weight of pressure on a number of fronts proved too much to bear for markets generally, with the main US indices each finishing the week lower.

Escalating tensions in the Middle East cast a shadow over sentiment, resulting in another rush towards haven assets such as gold and bonds. The spike in the oil price was more limited, given that the weekend attack on Israel by Iran had been largely anticipated. In the event, the air assault was largely repelled, although the oil price remains some 17% higher so far this year.

Apart from the human cost, this has separate implications for economies, where supply shocks and a rising oil price bring further inflationary pressures at a time when central banks are edging towards the final leg of getting inflation down to target levels.

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In addition, the developments also put additional strain on companies to deliver better than expected earnings in order to maintain the strength of market progress over the last few months.

In the context of a generally weaker market, the release of several bank results were not well received, with the likes of Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C) shares dipping despite posting revenue beats.

However, in what could be a sign of things to come in terms of disappointments being punished, JPMorgan Chase & Co (NYSE:JPM) shares fell by more than 6% after Net Interest Income figures came in below expectations and the company gave a guarded outlook given the inflationary pressures and geopolitical tensions weighing on the economy.

A further economic release showed that consumer sentiment had also weakened over the past month. With the consumer being the major driver of US economic growth, any spending reticence will have a noticeable impact and the release of retail sales figures later will add further colour. Also in the frame for updates are further quarterly earnings releases as the season picks up speed, with the likes of The Goldman Sachs Group Inc (NYSE:GS), Bank of America Corp (NYSE:BAC), Netflix Inc (NASDAQ:NFLX) and Procter & Gamble Co (NYSE:PG) all due to report this week.

In the meantime, the more technology focused indices are still comfortably ahead despite the drops of the last week, with the benchmark S&P500 and the Nasdaq up by 7.4% and 7.8% respectively this year. However, the dips have had a more pronounced impact on the more traditional Dow Jones Industrial Average, whose gains have now been shaved to just 0.8% in the year to date.

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Asian markets were equally cautious in response to the developments in the Middle East, with the US dollar strength as a haven destination placing further pressure on the Japanese yen.

Chinese markets edged higher in response to an announcement from its securities regulator, prompting hopes that the protection of consumer interests through such measures as added supervision of stock listings could reignite some investor interest. Later in the week, the region’s economic situation will be updated with the release of Japanese inflation and Chinese GDP numbers.

Investor caginess was inevitably evident in the UK given global developments, although market reaction was limited to measured declines at the open.

There was something of a return to defensive stocks, with some buying interest in the likes of BAE Systems (LSE:BA.) and Imperial Brands (LSE:IMB), although this was largely offset as both BP (LSE:BP.) and Shell (LSE:SHEL) took a pause for breath after recent gains.

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The dip takes the edge from a strong performance on Friday from the premier index which came within a whisker of touching an all-time intraday high. Even so, the FTSE 100 remains ahead by 3% this year, underpinned by some strong defensive sectors and an average dividend yield of 3.7%, both of which could position the index strongly in the coming weeks.

More generally, a busy economic week of releases includes updates on inflation, retail sales and unemployment as investors continue to assess the possibility of an easing of monetary policy from the Bank of England. However, various recent comments that an interest rate cut may yet be some way off has dampened revitalised interest in the FTSE 250, which has given up its recent growth to stand down by 0.1% overall in the year to date.