Market snapshot: week begins in sombre mood 

After a positive week for stock markets, especially the Nasdaq tech index, Monday has started badly. Our head of markets explains why. 

A stronger-than-expected jobs number in the US on Friday was met with a collective shrug of the shoulders, as markets finished the session largely flat.

The non-farm payrolls report showed that 372,000 jobs had been added against a consensus of 250,000, with the unemployment rate unchanged at 3.6%. While the report indicates underlying resilience in the US economy, and therefore no imminent threat of recession, it will also likely confirm that the Federal Reserve will hike rates by another 0.75% at its upcoming meeting.

Even so, this is the action that investors have been expecting for some time now and, alongside a more recent dip in commodity prices which has lessened some of the inflationary pressure, there was little new news to cause a meaningful reaction.

Attention now switches to another inflation reading later in the week, and also the beginning of the quarterly earnings season, opened by banks such as JPMorgan Chase & Co (NYSE:JPM) and Citigroup Inc (NYSE:C) on Thursday and Friday. Expectations are low for earnings generally, and outlook comments from companies will receive particular scrutiny. In the event of cautious guidance, it is likely that cuts to forward estimates will follow, thus putting pressure on what has been a torrid few months.

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Indeed, despite some more recent strength and an incremental improvement for the high-growth, tech-heavy Nasdaq index, the major markets remain firmly down. In the year to date, the Dow Jones has lost 14%, the S&P500 18% and the Nasdaq almost 26%.

Asian markets were in less sanguine form, with the announcement of fines on the likes of Tencent Holdings Ltd (SEHK:700) and Alibaba Group Holding Ltd ADR (NYSE:BABA) by China due to those companies failing to comply with anti-monopoly rules on transaction disclosures.

The latest spike in Coronavirus cases is also spooking investors, with data due later in the week likely to confirm a sharp contraction in the Chinese economy following a number of lockdowns over the past few months. In addition, it was also announced that commercial and industrial businesses in Macao will be closed for a week in an effort to contain the spread of Covid-19, hitting casino stocks in particular.

The sombre mood also spilled over to the UK in early exchanges, as investors searched in vain for reasons to be immediately cheerful.

With a number of economic and corporate releases due later in the week, ranging from retail sales to GDP, the expectation remains for the tightening of interest rates to continue amid high inflation and an increasingly evident cost of living crisis.

The general pessimism for the UK economy has been particularly reflected in the performance of the more domestically focused FTSE250, which has now fallen by 20% this year.

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The FTSE100, meanwhile, continues its attempt to be a relative oasis of calm, previously boosted by a stable of mature and defensive plays, as well as a large exposure to the mining and oil stocks which have generally performed strongly over the last few months.

Even so, mining stocks are under particular strain in early trade given the Chinese developments and any earlier gains have evaporated, leaving the premier index down by 3.6% in the year to date.