Market snapshot: US buoyant ahead of inflation data

US markets continue to push on the ceiling, driven by a confluence of positive factors which have lifted investor sentiment.

The Nasdaq briefly passed its record closing high during the session before slipping back, the benchmark S&P 500 remains near to the record set last week, while the Dow Jones rose to a new high yesterday. A largely positive earnings season has underpinned gains, erasing any concerns that the market may have overestimated the number and scale of interest rate cuts from the Federal Reserve this year.

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Inflation is still the last box to tick, as the chances of a recession continue to ebb in the face of constantly robust economic data. The latest reading will come later in the form of the Consumer Price Index today, where it is expected that the headline figure will have risen by 2.9%, down from 3.4% the previous month. Core inflation is expected to fall from 3.9% to 3.7%, with both numbers easing towards the Fed’s 2% target. While a hotter than expected number would cause some jitters, particularly if there are elements of inflation which remain stubborn, the general direction of travel seems to have been established.

Later in the week the producer price index and retail sales releases will add further colour, with the state of the consumer additionally being displayed by earnings reports from the likes of The Kraft Heinz Co (NASDAQ:KHC) and Coca-Cola HBC AG (LSE:CCH). Lurking in the background, however, is some concern on the commercial real estate sector. This in turn could impact some of the regional banks in an echo of the Silicon Valley Bank crisis last year, with New York Community Bancorp Inc (NYSE:NYCB) having dropped precipitously over the last couple of weeks following the announcement of a surprise loss. While there is currently little evidence of widespread difficulty, the sector and indeed the relevant banks who have exposure remain under the spotlight.

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In the meantime and from a broader perspective, the relatively clear path which has been established so far this year has been reflected by the strength of performance from the main indices, with the Nasdaq now ahead by 6.2%, the S&P 500 by 5.3% and the Dow Jones by 2.9%.

With the Chinese market closed for the week in light of the Lunar New Year holiday, attention switched back to Japan overnight following its own holiday on Monday. The reopening did not disappoint, with the Nikkei spiking once more to highs not seen since 1990, and edging nearer to the record high set in 1989. A weakened yen has boosted exporters, there has been some added interest given improvements to corporate governance, while foreign investors interested in Asia have been moving to Japan given China’s current economic challenges. The accommodative policy which the Bank of Japan follows has also lifted sentiment, with a further flat producer price index release suggesting little need for the central bank to alter its stance for the time being.

In the UK, unemployment fell to 3.8% from 4.2% the previous month, surpassing expectations of a drop to 4%. However, pay growth which is in itself inflationary, rose by more than expected by both measures of regular earnings plus a figure which includes bonuses. The number could further muddy the waters for the Bank of England, where a relatively resilient jobs market would not normally be a catalyst for considering interest rate cuts, and where inflation remains some way away from the Bank’s own target. The ongoing uncertainty on monetary easing has been a drag on market performance, best represented by the FTSE 250 which has fallen by 2.6% so far this year.

The premier index opened cautiously, following the slight weakness seen later in the day in some US markets. GSK (LSE:GSK) rose slightly following a broker upgrade, while mining stocks caught a tentative bid following some recent price pressure. Defensive stocks were also sought in early trade, while the late Nasdaq dip took some shine from Scottish Mortgage (LSE:SMT). The FTSE 100 has yet to tempt international investors back on the scene despite its exposure to a largely improving global economy and the US in particular, and remains down by 2% in the year to date.