Market snapshot: sentiment hit by double whammy

15th February 2022 08:10

by Richard Hunter from interactive investor

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As investors face both military and monetary aggression, the UK banks’ reporting season could be a welcome diversion from the turmoil.

The double whammy of military and monetary aggression continues to unsettle investors, with uncertainty around both adding to concerns.

Mixed reports on the escalating tensions between Russia and concerned nations have suggested that on the one hand, the threat of an invasion is nearing, yet hopes for a diplomatic solution are not yet exhausted. Amid such uncertainty, there has been something of a flight to haven investments such as gold and the US dollar, while the possibility of a further supply shock leaves the oil price currently ahead by 23% in the year to date.

Meanwhile, comments from a Federal Reserve member suggested that the central bank’s credibility was “on the line” in fighting inflation, adding to the increasingly loud chorus that the Fed is currently considering a more aggressive approach, which would begin with an interest rate hike of 0.5% in March. The number of further increases in the year is currently moot, although in the absence of a significant slowdown of inflation, several such rises seem likely.

Amid the uncertainty, the reporting season in the US is entering the home straight and thus far the news has been positive. Aside from a few high-profile misses, around three-quarters of companies have beaten estimates in terms of revenue and profit. Despite the strength of the numbers being reported, however, the outlook statements have been rather more sedate given the current state of global affairs, which has crimped general stock price progress.

After the latest turbulent session, the Dow Jones is now down by 4.9% in the year to date, the S&P 500 by 7.6% and the Nasdaq by 11.9%.

The general level of risk aversion is continuing to be somewhat circular, passing in turn between the US, Asia and Europe. The brisk progress which had been made by the FTSE 100 this year has been shaken by wider political and economic events, although the premier index is still clinging on to a gain of 2% in the year to date.

The imminent UK banks’ reporting season, which kicks off with full-year numbers from Standard Chartered (LSE:STAN) on Thursday, could be a welcome diversion from the current turmoil. Although shares have been under strong pressure in the last couple of trading sessions, hopes are positive for signs that the banks have comfortably weathered the latest economic storm following the pandemic and are now positioned to update investors on their plans for the next leg of growth.

If the banking sector can boost its performance alongside the oil sector, and with the defensive nature of the FTSE 100 in the spotlight, the UK’s premier index could yet maintain its current position as a preferred investment destination.

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