Market snapshot: Ukraine, interest rates and US earnings

With so many moving parts still affecting share price direction, our head of markets brings us up to speed. 

Markets ended on a high Friday following a strong week of trading as investors continue to assess current geopolitical and economic implications.

While the announcement that Russia has for the moment avoided a sovereign default which would undoubtedly have added to investor jitters, the situation in its ongoing conflict with Ukraine remains more pertinent to sentiment. Ongoing speculation that there is slow progress towards a ceasefire is capping further market losses, although in the meantime commodity prices continue to feel the pressure of an upward squeeze on supply constraints. The oil price remains notably volatile and is ahead by 39% in the year to date, adding inflationary fuel to a fire which is burning in most global economies.

Reports that a conversation between the US and China also apparently ended without surprises, with the Chinese retaining their independent stance in terms of the Russian situation, also calmed some nerves. The relationship between the US and China has been fractious in recent times and, while there is no evidence to suggest that the countries will warm to each other any time soon, any further deterioration seems to have been avoided for the time being.

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Equally, the current path of direction from the central banks on interest rates has removed some uncertainty from the general market outlook. As such, growth stocks have seen something of a revival, with a strong showing over recent sessions from big tech stocks in particular boosting both the Nasdaq and the S&P500, which also has a large tech bias.

There is also a hope that with some market uncertainty now removed with regard to interest rates, investors will now turn their attention to earnings. First-quarter earnings will begin to filter through in the next few weeks and will be an interesting indicator as to how companies on the ground have fared after the impact of Omicron and more latterly during the Russia/Ukraine crisis.

In the meantime, although US markets have rebounded from the depths of the month, they remain in negative territory for the year, with the Dow Jones having dropped by 4.4%, the S&P500 by 6.4% and the Nasdaq by 11.2%.

In relative terms, the FTSE100 continues to be a strong performer on the global investment stage. The preponderance of commodity stocks, coupled with a raft of defensive options, has led to another reassessment by investors on the attractions of the index as an investment destination. The average dividend yield of 3.3% is another benefit with investors effectively being paid to wait ahead of any sustained global recovery, such that the index has managed to a marginal gain of 0.3% in the year to date.

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Of course, the index is not entirely immune from broader geopolitical concerns and the ongoing lack of a confirmed or visible improvement in the current conflict is still weighing on sentiment. The flat opening on early exchanges is finely balanced between some commodity strength and stock-specific weakness, and echoes the mixed showings emanating from Asia overnight, as opposed to the strong finish last week from across the pond.