Widely-watched US jobs data takes centre stage today as investors digest latest results from the tech sector. Our columnist looks at the possibilities and what's happening here in the UK.
After a generally strong showing from US markets, sentiment soured slightly after the closing bell.
Big tech shares were at the centre of attention, with the Nasdaq index building on an extremely strong start to the year. Hopes of cooling inflation and a retreat from aggressive interest rate hikes, there has been something of a return to growth shares, having suffered a difficult time last year as the value trade became the focus of investor activity.
The latest surge followed strong numbers from Meta Platforms Inc Class A (NASDAQ:META), which lifted sentiment across the space. However, some of this strength may unwind later, following disappointing updates from Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and Alphabet Inc Class A (NASDAQ:GOOGL) after the bell which saw those shares under pressure.
In the meantime, the Nasdaq has added 16.6% so far this year, with technology shares also having a notable effect on the S&P500, which is up by 8.9%. The Dow Jones is also ahead by a more moderate 2.7% in the year to date.
The next piece of the economic jigsaw will follow this afternoon with the release of the latest non-farm payrolls data. The current consensus is that 185,000 jobs will have been added in January, as compared to 223,000 the previous month, in what would be the lowest reading for two years. At the same time, unemployment is expected to tick up slightly to 3.6%, with hourly wage inflation remaining flat. Such a reading would add fuel to the fire that the end of the Federal Reserve aggression is nearing, although any sharp positive deviations would unsettle investors and prompt a rethink around the central bank’s next move.
Indeed, an outlier projection from a US investment bank suggested a reading as high as 300,000 jobs was possible, which would certainly then reset hopes that the economy was weakening sufficiently. The labour market has been the last of the dominoes to fall thus far, with Fed comments remaining cautious and suggesting that it remains too early to proclaim success in the war against inflation.
Asian markets were similarly guarded overnight, with sentiment dampened by the late disappointment of US big tech updates. Investors are still pinning their hopes on signs of a sustained economic recovery, especially in China where the lifting of Covid-19 curbs may have unleashed an economic return to form. Indeed, a survey from the region suggested that services activity rose in January, lifting business confidence as well as potentially turbocharging consumer spending.
US caution also rippled across to UK shores, where the main indices saw a tepid opening in the absence of any positive catalysts. The previous interest rate announcement from the Bank of England had been taken positively as a signal of peaking central bank action, while more recent economic data has generally been better than feared, albeit tepid. This has boosted the FTSE250 in the year to date after a difficult 2022, with the index ahead by 8.9%.
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The FTSE100 also remains something of an investment destination of choice on the global stage. A slightly weaker opening saw broad markdowns, with the housebuilders under pressure once more, largely following another interest rate hike, while there was also a broker downgrade which weighed on Kingfisher (LSE:KGF).
Even so, the more defensive nature of the index with its smattering of inflation-proofed stocks has served it well of late, and has been underpinned by a generally attractive average dividend yield of 3.5%. In the year to date, the FTSE100 has added 4.8% while navigating its way through most economic hurdles so far.
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