Market snapshot: share prices remain under pressure ahead of more data

It's all eyes on inflation, interest rates and recession again as investors continue to digest the latest US jobs report and look ahead to new numbers and corporate results. Our head of markets rounds up the action.

Markets are unable to shake of the shackles of interest rate rises which apparently have further to go, with the resilience of the US economy and persistent inflation currently confirming the trend.

The non-farm payrolls report on Friday painted a mixed picture, with investors choosing the glass half-empty option. While the headline number of jobs created came in at 209,000, below expectations of 240,000, the unemployment rate eased to 3.6% from 3.7%.

At the same time, average hourly earnings increased by 0.4% for the month, which equates to a rise of 4.4% compared to the year previous. By way of comparison, that figure was running and somewhere around 3% pre-pandemic and is further proof that even if the labour market is showing initial signs of weakening, wage inflation remains an issue in the fight against inflation.

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Indeed, inflation is one of the themes for the week, with the US consumer prices reading expected on Wednesday. The current forecast is for a deceleration in core inflation to 0.3% from 0.4% and to 5% from 5.3% on an annualised basis. The headline number is expected to come in at 3.1%, in stark comparison to the level of 9.1% a year ago, but nonetheless still in excess of the Federal Reserve’s 2% target.

With the likelihood of a July rate rise now fully expected and the real possibility of another before the Fed calls time on its hiking policy, investor thoughts will remain dominated over whether such tightening will eventually cause something to give in the US economy.

The week also heralds the start of the half-yearly reporting season, with the bar set extremely low in terms of earnings expectations. The consensus seems to point to a decline of around 9% in earnings year on year, with the effects of the restrictive monetary policy environment beginning to bite on both revenue growth and pressure on margins. You can see the interactive investor earnings calendar here. 

With bond yields also now elevated and having an impact on borrowing costs, companies may have been under additional pressure. An early indication as to whether this has affected the banks will come as the likes of JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC) among the first to report, with other sectors being represented by blue chips such as PepsiCo Inc (NASDAQ:PEP) and Delta Air Lines Inc (NYSE:DAL).

In the meantime, the major indices ended down last week, shaving some of the gains seen so far this year. Even so, the Dow remains ahead by 1.8% in the year to date, with the S&P500 and the Nasdaq having posted rather stronger gains of 14.6% and 30.5% respectively.

Asian markets were mixed overnight, with news from China undermining any attempted progress once more. Lower inflation and producer prices readings combined to stoke fears of deflation and a further weakening of demand. The reports were a stark reminder that the economy is in need of an injection of stimulus to resume its recovery, with any number of data points indicating a broad-based evaporation of sentiment after an initially positive reaction to the country’s reopening.

Perhaps unsurprisingly, UK markets were unable to snap out of their recent inertia, given the uninspiring backdrop from other global markets.

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A tepid opening was mirrored by weakness in China-related stocks given the ongoing difficulties of that economy, while the fall was exacerbated by a raft of broker downgrades which caught the likes of Ocado Group (LSE:OCDO), Segro (LSE:SGRO) and Land Securities Group (LSE:LAND) in the firing line. The premier index has latterly fallen out of institutional and international favour on a number of fronts, and is now down by 2.6% in the year to date and some 9% away from the record highs seen in February.

Given the likelihood of a tightening monetary policy environment in the UK, sterling’s more recent strength has been scant consolation for an economy which has yet to convince investors that it will be able to withstand further rate rises. The more generally accepted barometer of the UK economy, the FTSE250, has capitulated to such concerns and is now behind by almost 5% so far this year.