Market snapshot: some apathy in evidence

A shortened trading week which coincides with the end of the first quarter has left investors sitting on their hands, seemingly unwilling to commit to new positions in the absence of any major corporate or economic catalysts.

Inflation and therefore the direction of interest rates remains the central theme, with the latest Personal Consumption Expenditures report due on Friday, when markets are closed, thus pushing back any price reaction until next week. The inflation reading has the potential to unsettle sentiment, with some of the more recent data coming in slightly higher than expected, reducing pressure on the Federal Reserve even to consider cuts.

The report is expected to show an increase of 0.4% for February and 2.5% annualised, with core inflation excluding volatile food and energy components estimated to rise by 0.3% and 2.8% respectively. Any deviation to these numbers in either direction would be market moving, leaving investors mostly on the sidelines for the next few days.

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In the meantime, there were some lesser updates for consideration, with durable goods orders coming in stronger than expected, although consumer confidence dipped marginally from the previous month’s level. The latter is one which feeds into the overall picture, since the consumer is estimated to account for some 70% of US economic growth. To date, there have been few signs of a decline in consumer spending, but as a leading indicator the reading could prove to be a concern, especially if the impending inflation reading upsets the current narrative for the direction of interest rates.

The rather more tepid market moves of the last few days have also led to speculation that the recent rally could be broadening out to sectors other than mega cap technology – and the “Magnificent Seven” in particular – which have been central to market strength over the last year.

The upcoming first-quarter earnings season will inevitably add further colour to the health of corporates in general, and expectations for a strong season are beginning to tick higher. The main indices have put in a healthy performance as the quarter winds down, with the Dow Jones having added 4.2%, the Nasdaq 8.7% and the S&P500 9% in the year to date, with each of the indices having set record highs over recent weeks.

Asian markets were mixed, also hamstrung ahead of the US inflation print on Friday. The Nikkei index in Japan was marginally higher, with further weakness in the yen despite the recent central bank tightening leading to speculation that some intervention could be on the cards to support the currency.

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Chinese shares were slightly lower despite a release showing that industrial profits had risen at the beginning of the year, especially among private and foreign-owned companies. In addition, comments from the central bank’s governor that the beleaguered property sector was showing some signs of recovery did little to lift sentiment.

International investors will need to see concrete signs of either full economic recovery or indeed further stimulus from the authorities before they can be tempted back, while the ongoing tech spats between the US and China are a further geopolitical concern.

Investor apathy ahead of Friday’s inflation print also spilled over to the UK, where the main indices slipped slightly in opening trade. Points of interest were in short supply in the premier index in typically light trading ahead of an extended weekend to come.

Even so, the UK market has shown some signs of life over recent weeks, with both of the leading indices pushing into positive territory. The FTSE100 is now up by 2.5% so far this year, with the FTSE250 recently having clawed back earlier losses to stand ahead by 0.5%.

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While there has been no specific catalyst for the improvement, the fact that several companies have become bid targets plays to the theme that on a historic valuations basis - and indeed in comparison to many of their global peers - UK shares are trading on a deep discount. As such, and with some international investors broadening out and looking for value away from the mega cap tech stocks, the UK market could yet prove to be something of a hunting ground.