Market snapshot: US data, volatility and Evergrande

Our head of markets brings you up to speed on what's driving global financial markets and UK stock prices.

US markets rebounded Friday after a torrid week, but the UK took its lead Monday morning from a weaker showing overnight in Asia.

Hopes for further vaccine developments in the US and that a return to normality is on the close horizon, lifted the mood. Underpinned by a consumer spending number which rebounded sharply in August, shares in airlines, cruise ships, hotels, restaurants and retailers spiked.

The inflation number remained elevated but steady. Separately, a reasonable manufacturing reading was accompanied by cautionary comments regarding ongoing supply chain disruptions, which are keeping prices high.

In terms of economic news this week, the highlight will come with the widely-watched non-farm payrolls on Friday. The current consensus is that 460,000 jobs will have been added after a tepid and much weaker than expected reading of 235,000 in August.

In the meantime, investors remain on edge as broader economic concerns prevail. The imminent third-quarter reporting season, set against an extremely buoyant set of results in the second quarter, will face tough comparatives and may well prove likely to have been adversely affected by general inflationary pressures.

For the moment, the main indices are maintaining a strong upward trajectory despite the recent jitters, with the Dow Jones ahead by 12%, the S&P500 by 16% and the Nasdaq by 13% in the year to date.

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Concerns around the property sector in China generally depressed Asian markets overnight, as Evergrande missed an interest repayment, exacerbating fears about contagion in the region. Further news is expected on a potential “major transaction” regarding the company which could potentially ease some fears, although stalling economic growth in the region and a tightening of regulatory restrictions has not helped sentiment.

UK investors have also been spooked by the myriad of current concerns. In addition to the globally pervasive issues of supply chain blockages and elevated inflation, there are also a number of downward earnings revisions which could threaten to derail some of the progress already made.

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The higher volatility and constant rotation between value and growth stocks is likely to persist in the near term, which clouds visibility for the FTSE100’s generally cyclical constituents.

With investor sentiment finely balanced, the main UK indices have been under pressure, although some solace has been found in the FTSE100 given the more recent weakness in sterling. In the year to date, the FTSE100 is ahead by 8.5% and the FTSE250 by 11.9%, although both are some way off the highs experienced earlier in the year.

The next few weeks are likely to be typified by further swings in investor behaviour, as equities being favoured as the investment destination of choice comes under the continued challenge of more global economic concerns.

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