Market snapshot: stocks regain some poise

Wall Street enjoyed a late recovery last night and there are gains in London Thursday. Our head of markets explains why.

Investors regained some poise after the effects of the latest inflation shock subsided, with a further economic reading calming nerves.

In the final minutes of trading on Wall Street, the main indices inched into positive territory after the release of the US Producer Prices Index reversed some of the damage which had previously been wrought by Tuesday’s hotter than expected number.

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Prices fell for a second month in August, largely driven by a reduction in the cost of gasoline. In addition, underlying producer inflation showed a moderate rise, which could suggest that some of the inflationary supply chain blockages could be on the verge of loosening up.

With food prices unchanged, attention may turn to the price of services. With the labour market remaining tight, prices are likely to remain higher and the overall has done little to change expectations of another 0.75% interest rate hike from the Federal Reserve next week.

In the meantime, markets will turn to the release of retail sales later and how consumers are faring in light of the current economic pressures. The consumer is core to economic growth in the US, and the optimistic hope is that a reduction in gasoline prices may have encouraged spending in other areas of the economy. The release should also add further colour to the underlying demand situation, and whether the interest rate hikes already implemented have cooled propensity to spend.

Even so, with the yield curve remaining sharply inverted – often seen as a precursor to recession – markets remain fragile despite a pause for breath yesterday. In the year to date, the Dow Jones is now down by 14%, the S&P500 by 17% and the Nasdaq by 25%.

Asian markets were mixed to positive in undulating sentiment. In Japan, data revealed that the country had posted a record trade deficit in August, driven by weakness in the yen which had a negative impact on the cost of the country’s imports, and it remains to be seen whether currency intervention may follow.

More positively, there was a boost for Chinese property developers as shares rose on hopes that the authorities would be rolling out measures to provide support for the beleaguered sector.

UK markets also showed some signs of brief relief, with the flagship FTSE100 posting moderate gains in early exchanges. The turnaround was not enough to reverse the declines of the previous day, however, with the index hugging neutral territory for some weeks now.

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In the year to date, the FTSE100 has declined by just 1%, underpinned largely by the performance of its largest stocks and elevated commodity prices generally. By market capitalisation, four of the top five stocks – which have a significant weighting between them – have comfortably risen, while the fifth, Unilever (LSE:ULVR), has flatlined.

Shell (LSE:SHEL), AstraZeneca (LSE:AZN), HSBC Holdings (LSE:HSBA) and BP (LSE:BP.) have responded to sectoral positives throughout the year which has generally been enough to provide the flagship index with a relatively firm footing.

Nonetheless, volatility seems set to remain entrenched for the time being as the global economy grapples with high inflation and central bank measures to tame it.