Market snapshot: these two events dominate investor behaviour

Traders are unwilling to take the plunge ahead of some key events that could have a major impact on stock prices. Our head of markets explains the situation.

Investors are largely unwilling to take the plunge ahead of two vital indicators later in the week, with most markets treading water in the meantime.

Federal Reserve Chairman Jerome Powell’s Congressional testimony and the non-farm payrolls report are the undoubted highlights of the week. Taken together, the two events will provide the latest update on the immediate past, present and future of the world’s largest economy and will be crucial in determining market sentiment.

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Powell’s remarks to Congress are likely to cover the Fed’s latest reaction to last month’s inflation data, which came in higher than expected. At present, the market is pricing in three more rate rises this year, including a 0.25% hike later this month, but any increase in hawkish rhetoric would likely spell danger for equity markets. 

Alongside the outcome of the latest Fed thinking, the jobs report on Friday will follow a blistering number from the previous month. Expectations are for 225,000 jobs to have been added in February, as compared to 517,000 in January, while close attention will also be paid to both the unemployment rate and wage growth for clues in assessing the current state of the nation.

In the meantime, markets remain ahead in the year to date, with the Dow Jones up by 0.9% and the S&P500 by 5.4%. The tech-heavy Nasdaq remains the stand-out performer so far this year, having risen by 11.6%, although there remains a considerable way to go if the index is to recover the heavy losses of 2022. Growth prospects, which are influenced by the level and direction of interest rates, will continue to be reviewed as the broader economic picture begins to clear.

Asian markets underwent a mixed session, with the impending news from the US also dampening investor appetite. The latest growth forecast from China, which had been taken as too conservative and therefore slightly disappointing, weighed on resource stocks around the globe and appeared to show that the stabilisation of the country is the immediate priority. At the same time, a release showing that China’s imports and exports fell sharply in January and February introduced some doubt on the strength of domestic demand.

Elsewhere, a busy schedule is in place, including the latest interest rate decision from Australia, growth figures from South Korea and inflation updates from the likes of Thailand and Taiwan, all of which will make their own contribution to the global economic picture.

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UK investors were equally guarded, as the early trading exchanges failed to make a particular impact in either direction. The weakness of the previous session in mining stocks was mostly stemmed, with most sectors hugging the flatline in light trade. The tepid opening nonetheless leaves the premier index in reasonable shape, with the FTSE100 having risen by 6.3% in the year to date as the attraction of its largely defensive and stable constituents continues to lure investors.

The more domestically-focused FTSE250 also drifted in early trade, following another house price index release which raised questions less on the level of prices, but rather more on housing activity and demand in the current environment. Even so, the index also remains in positive territory this year, with a rise of 6.2% also reflecting some resilience.