While not back in record territory just yet, buyers returned to US stocks overnight. Our head of markets has the latest.
Markets in the US staged a comeback as investors pondered the implications of the lower-than-expected US inflation reading from the previous session.
The reading adds weight to the hopes that not only has the Federal Reserve read the transitory inflation story correctly, but the slightly elevated number has lessened pressure on the need for tapering. While the likelihood of an introductory taper remains on the cards by the end of the year, recent economic data has provided little suggestion that the economy is overheating.
Indeed, import prices posted their first monthly decline since October 2020, which could be an early signal that inflation may have peaked.
Meanwhile, a surge in energy prices due to general supply concerns and the effect of Hurricane Ida in particular has left the oil price ahead by 46% this year. As the winter months approach, demand will also be tested alongside the possibility of an economic recovery heightening the requirement for commodities overall.
The more sanguine approach from investors snapped the losses seen over the last few trading sessions, leaving the Dow Jones up by 13.7%, the S&P500 19.3% and the Nasdaq 17.6% in the year to date.
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Asian markets were rather less positive, however, as China’s retail sales and factory output growth slowed, given fresh Delta variant outbreaks and supply chain disruptions. In addition, the recent tightening of regulation on technology shares has now potentially extended to the gambling hub of Macau, leaving the question on whether these moves mark the thin end of the wedge. At the same time, Japan cut its growth forecasts as a surge of Covid-19 cases dampened consumer confidence.
For the UK, there was also a tentative recovery in opening exchanges as investors mulled the news from Wall Street and Asia overnight. The generally positive opening was led by some strength within cyclical shares, although the moves were unconvincing. The indices nonetheless remain ahead in the year to date, with the FTSE100 having added 9% and the FTSE250 14.8%.
Even so, with the known issues now on the table and potentially priced in, the next catalysts could either come from renewed signs of a global economic bounceback, or the third quarter reporting season providing positive shocks in the first weeks of October.
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