Market snapshot: ripples of optimism keep winning streak alive

The FTSE 100 has only had one negative trading session in the past three weeks, but can it continue? Our head of markets rounds up the action and outlook for interest rates, the economy and share prices.

Markets rallied on increasing signs that the global round of interest rate hikes could be drawing to a close.

In the US, the Producer Prices Index for March fell by 0.5% against expectations for a flat reading, rising by just 2.7% year-on-year from 4.9% in February and versus estimates of a rise of 3.4%. The core number, which excludes energy and food, fell by 0.1% as opposed to the increase of 0.2% which had been expected.

The PPI is seen as an indicator of consumer inflation and follows a Consumer Price Index report the previous day which showed an inflation advance of just 0.1%, and an annual hike of a much lower 5% than had recently been the case.

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In addition, weekly jobless claims ticked higher, suggesting a further cooling in the labour market. The health of the vitally important consumer will be updated later with the release of the US retail sales number, where any weakness could ironically be welcomed as part of the dovish jigsaw being formed as the economy weakens as the Federal Reserve had hoped.

While the consensus remains that there is one more hike of 0.25% to come in May, there are no more rate rises expected thereafter this year. Indeed, some are projecting that interest rate cuts could follow before the end of the year, depending on the severity of the recession which is expected to follow, although this is not currently the Fed’s base case.

Even so, the news was enough to propel big technology stocks, which had previously borne the brunt of a rising rate environment, with the Nasdaq adding 2% to stand ahead by 16% in the year to date. The other main indices also made progress in excess of 1%, leaving the Dow Jones up by 2.7% and the S&P500 by 8% so far this year.

The next test begins in earnest today, with reports from Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co (NYSE:JPM) opening the quarterly round of company updates. The sector warrants particular attention given the recent banking turmoil, not least of which will be in terms of lending conditions, loan defaults, provisions for bad debts generally and the immediate outlook for the sector.

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Asian markets were also buoyed by what could be an easing of the global monetary environment. Singapore joined the likes of Australia and India in putting interest rate rises on hold, while an upside surprise also came in the form of a better than expected trade performance from China.

More recent data has tended to disappoint as to the strength of the Chinese economic recovery after reopening, so the trade number was a welcome diversion from the trend. Even so, any economic reading cannot be taken in isolation and investors in the region will continue to keep a close eye on China’s fortunes, and also whether the authorities are poised to intervene if necessary in lending a helping hand to recovery.

The ripples of optimism were not lost on UK markets, which edged into positive territory in early exchanges. The more domestically-focused FTSE250 continued its recently cautious recovery, still reflecting the fact that while UK economic data has tended to be anaemic at best so far this year, it has also been rather more resilient than had previously been expected.

As such, the mid-cap index is now ahead by 1.3% in 2023, off earlier year highs but nonetheless away from the negative performance of the last couple of months.

Meanwhile, the FTSE100 also ticked higher, with some impetus being provided by the mining sector, with the housebuilders also notching marginal gains after a recent and more upbeat broker note on the sector.

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Regardless of the various reports suggesting that the UK is out of favour both as an investment destination as well as a hub, the components of the index continue to attract interest given the strength and stability of earnings, as well as an average dividend yield of 3.5%.

While some way off the record highs posted in February, the index nonetheless remains ahead by 5.4% in the year to date, with any continued improvement in global sentiment likely to prove supportive.