There were big gains on Wall Street Friday, but fresh data out this week could keep stocks jumpy. Our head of markets assesses the current scenario.
Some stronger corporate earnings allied with some broad bargain hunting sparked a relief rally, although the US markets remain firmly in negative territory for the year.
Following on from some strong numbers from Apple (NASDAQ:AAPL), which rose a further 7%, Visa (NYSE:V) reported higher spending on commerce and international travel, sending its shares almost 11% higher.
The rebound came despite reports of consumer spending falling in December as the Omicron variant began to take hold, although the news was accompanied by a rise in labour costs which was weaker than expected. Although the figure cannot be taken in isolation, it is already being hoped that this could signal a peak for this particular inflationary pressure.
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While there are no ground-breaking announcements expected from the Federal Reserve this week on tightening, the spectre of interest rate rises is likely to loom. Investors are currently grappling with valuation metrics following a strong run over recent years for the main indices, with higher rates not only increasing borrowing costs for companies but also discounting the value of future profits.
At the same time, the latest non-farm payrolls report at the end of the week is expected to show a weaker reading, given the rise of the variant in December and a bout of adverse weather. The current forecast is for around 150,000 jobs added. In the meantime, the main indices have reduced some of their losses in the year to date, although the Dow Jones remains down by 4.4%, the S&P500 by 7% and the Nasdaq by 12%.
Geopolitical tensions, which are adding to existing concerns on tight supply have lifted the oil price again, now ahead by 17% in the year to date. With Omicron variant numbers expected to continue their present decline, there is also an expectation for higher demand as traffic recovers in Europe and as the US shows a similar bounce, with gasoline demand now reportedly just 4% shy of 2019 levels.
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Amid the global tightening cycle, the UK is also expected to raise interest rates again this week to 0.5% from the current 0.25% in an attempt to put the brakes on inflation, lessening the effect of the emerging cost of living crisis.
The decision also comes at a fragile time, with the associated additional costs for businesses weighing against the assumed rise in hospitality and, to some extent, consumer sales, as the variant begins to subside and restrictions have all but disappeared.
In the meantime, the market has taken its lead from the late rebound in the US trading session which also followed through to some strength in Asian markets.
While the broad mark-up of shares in early exchanges takes the FTSE100 to stand ahead by 1.7% in the year to date, the situation remains delicately poised, and the current levels of volatility are likely to be echoed by a continuation of the currently skittish sentiment.
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