Market snapshot: rally demonstrates power of data

After a positive reaction to latest economic data, attention shifts to central bankers and a key inflation report. Our head of markets explains what's going on. 

US markets snapped a recent losing streak as recessionary concerns retreated following a strong set of economic data.

New home sales rose by more than had been anticipated, and durable goods data for May showed that orders for US manufactured goods had unexpectedly risen. Separately, US consumer confidence rose to a high not seen for some 18 months, suggesting that this vital cog of US economic growth remains resilient despite the aggression of Federal Reserve interest hikes so far.

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The combined readings also implied that the US economy remains on an upward trajectory, leaving it well placed to withstand the rate hiking cycle and even the possibility of two further hikes this year. A rise in July is now widely expected from the Fed meeting, although the likelihood of a second and possibly final hike before the end of the year remains open to debate.

The upbeat reaction to the economic data enabled tech stocks to resume their relentless march this year, which has seen the Nasdaq rise by 30% in the year to date and the tech-exposed benchmark S&P500 by 14%.

The concentration of these rallies to just a handful of stocks has been something of a concern for investors searching for a broader recovery, but for the moment stalwarts such as Meta Platforms Inc Class A (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT) and Apple Inc (NASDAQ:AAPL) continue to drive gains. At the same time, there was also buying interest among consumer discretionary stocks on the back of the confidence data, while Delta Air Lines Inc (NYSE:DAL) rose by almost 7% following an upgrade to its trading outlook.

Further food for thought this week will come in the form of a speech from Fed Chair Jerome Powell, speaking at the ECB Forum in Portugal and then the key inflation reading, the Personal Consumption Expenditures report on Friday. Both should provide clues on the current thinking on interest rate decisions which are aimed at putting the inflation dilemma to bed once and for all.

After what had been an upbeat previous session, Asian markets dipped, with China in the spotlight once more. Industrial firms saw a further decline in profits on weaker demand which squeezed margins. The data added to concerns of a slowing recovery, as evidenced by recent pressure on retail sales, the property sector and exports and with youth unemployment remaining uncomfortably high. Sentiment was further bruised by reports suggesting that the US was considering new restrictions on the export of Artificial Intelligence chips to China, adding to concerns on an underlying relationship which has been fractious for some considerable time.

After limping to a barely positive close on Tuesday, the FTSE100 attempted a fresh rally in opening exchanges, although such bounces have proved difficult to sustain over recent weeks. A combination of an investor flight to growth rather than stability and the inevitable impacts of recessionary concerns in the US and a faltering recovery in China have provided a toxic cocktail which has been difficult to shake.

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While the latest data from the US is increasingly optimistic on the prospect for a soft landing, the backdrop in the UK is significantly different, with rising interest rates battling against what has been fairly anaemic growth and therefore heightening the possibility of recession.

Despite an opening which saw gains spread largely among financial stocks, the main indices remain under pressure after what had been a strong performance amid earlier year global market volatility. In the year to date, the FTSE100 is ahead by just 0.5%, while the FTSE250 has long since given up any gains, having now fallen by 4%.