Market snapshot: slim pickings in light trading 

With US markets closed for Thanksgiving, light trading did little to move the dial, although Chinese equities succumbed to another bout of weakness.

Nor will today add much fuel to the fire, with a shortened trading day in the States. Even so, economic releases on the manufacturing and service sectors will provide some interest, as will any early indications from retailers on the success or otherwise of the traditional Black Friday spending spree.

With the consumer being the powerhouse of the US economy, and with some softening of sentiment given the effects of higher interest rates, Black Friday will not only provide a snapshot on the latest levels of consumer activity but will also act as a precursor in the run up to the busy festive season. Of late, there have been indications that savings accumulated during the pandemic have begun to run dry, in turn propelling higher spending on credit cards, which the banks will continue to monitor for any signs of credit deterioration.

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Any pause for the US markets will be relatively short-lived, with the release of the Personal Consumption Expenditures data next week. This measure is the Federal Reserve’s preferred gauge of inflation, and a continuing drift lower of the headline figure will be necessary to maintain the current view that the interest rate hiking cycle is now over. By the same token, any unexpected spike higher will put the Fed back on alert, which in turn will unsettle investors who are now beginning to debate the potential for rate cuts next year as opposed to any more rises in the meantime.

Asian markets were mixed in the absence of a lead from Wall Street, with Chinese shares under pressure once more. Gains from the previous session were erased, as property developers fell after a strong earlier showing on the back of reported support measures being implemented by the authorities. The beleaguered sector is part of what is currently a fairly toxic mix for the economy, with lockdown removal gains having evaporated following tepid growth, high youth unemployment and wavering consumer sentiment all remaining on the to-do list.

By contrast, Japan is currently in a stronger position, with the Nikkei still hovering around the 33-year high which it hit on Monday. Investors returned from a public holiday yesterday to find that inflation rose slightly in October, while manufacturing activity fell for a sixth consecutive month.

However, the Bank of Japan has maintained that the slight uptick in inflation is due to external factors and some currency weakness, suggesting that its easy monetary policy will continue for the time being in an effort to further propel domestic demand and even wage growth.

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In the UK, markets were again on the back foot in the absence of any positive leads. The FTSE 100 drifted lower, with the latest fall in China spreading its wings to cover the likes of the miners, as well as those stocks with a particular exposure to the region, such as Burberry Group (LSE:BRBY), Prudential (LSE:PRU) and Standard Chartered (LSE:STAN).

Stocks gaining were few and far between, as traders sat on the sidelines amid lower volumes. The FTSE100 is again approaching the flat line in the year to date, with the current gain of a marginal 0.2% constantly under threat.

Meanwhile, the FTSE250 continues to feel the reverberations of an uncertain economic outlook in the UK. While yesterday’s PMI data nudged back into positive territory, downbeat growth forecasts set against a tight monetary environment continue to weigh on a consumer who has not yet buckled under the weight, but who is increasingly retrenching as inflation remains elevated although reducing. The index has now lost 2.2% so far this year, and the uncertainty is indicative of the UK’s current status as an investment pariah on the international stage.

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It remains to be seen whether the increasingly cheap valuations placed on UK shares compared to global peers will at some stage ignite overseas investors’ appetite to consider selective company purchases. There have been some recent examples of bid approaches in the mid-cap sector, but so far the premier index has remained exempt in what could yet become a feature next year should market conditions improve sustainably.