Market snapshot: stocks poised on a knife-edge

Despite a great start to the week for stocks, prices are moving lower Tuesday as a number of fears resurface. Our head of markets explains. 

Investors took solace from some potentially positive geopolitical news, but the relief could prove to be short-lived.

The rare good news came in the form of a possible thawing of relations between the US and China and the abolition of some tariffs in the months to come. On the basis that such a move could lessen some of the pressure on inflation, there could also be some respite for what is likely to be slowing global economic growth.

However, despite a strong session across the board US futures dipped into negative territory once more, led by another decline in the Nasdaq after the bell. An earnings warning from Snapchat owner Snap Inc Class A (NYSE:SNAP) was seen as largely responsible, as the company pointed to a faster than expected deterioration in the economic environment. The comments sent the shares more than 30% lower, providing a stark reminder that sentiment remains delicate and prone to any earnings disappointments.

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A host of Federal Reserve speeches and the release of the latest minutes are likely to underline their currently hawkish stance, which may again lead to fears that over-tightening could tip the world’s largest economy into recessionary territory. In the meantime, the brief relief rally did little to improve the fortunes of the major indices in the year to date, where the Dow has fallen by 12.3%, the S&P500 by 16.6% and the Nasdaq by 26.3%.

Asian markets were mixed despite the potential easing of tensions between the world’s largest two economies. It appears that the effects of lockdowns in China have already tainted the country’s shorter term economic prospects, with growth expected to slow once more in the current quarter as the impact of a lingering virus damage both sentiment and consumer habits.

The evaporation of optimism also followed through to UK markets in early trade, as the FTSE100 gave up some of its gains from a previously positive session. While the premier index has managed to maintain its progress in the year to date, remaining up by 0.8%, sharp reversals in reaction to breaking news as evidenced last week can wipe out these hard-won gains in an instant.

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The latest set of UK borrowing figures provided another reminder that economic pressure remains, with the consumer edging nearer to a summer of discontent. The more domestically focused FTSE250 has tended to bear the brunt of caution on the UK’s economic prospects and remains down by almost 15% in the year to date.

In any event, investors remain poised on a knife-edge, seeking relief among a continuing list of global concerns. Until such time as some positive catalysts arrive and are seen to be sustainable, the current volatility is likely to prevail.