Market snapshot: a welcome boost for stock prices

US markets shook off a recent poor run to end firmly higher overnight, driven by a fall in Treasury yields and a weaker oil price.

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Technology stocks were at the vanguard of the relief rally and each of the main indices are closing in once more on recent record highs. Within the Magnificent Seven, NVIDIA Corp (NASDAQ:NVDA) and Amazon.com Inc (NASDAQ:AMZN) added more than 2%, with Microsoft Corp (NASDAQ:MSFT) not far behind. Other stocks in the AI space such as Intel Corp (NASDAQ:INTC) and Qualcomm Inc (NASDAQ:QCOM) rose by 7% and 2% respectively.

Some of the relief is being attributed by investors to what would normally be taken as a hawkish signal for equities, namely the raising of interest rates by the Federal Reserve, with several more hikes potentially to come over the following months. Even if this signals the start of a tightening cycle, the US economy remains in rude health for the most part and the action rather than words from the Fed has reinforced the central bank’s desire to rein in inflation, even though it could be 2029 until the 2% target is met.

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News of the possibility of more crude cargoes being made available to Asian refiners near Oman had a calming effect on the oil price, although it remains above the important psychological level of $100 per barrel, which is a reminder that the inflationary effects are far from over. Even so, it was in turn enough to slightly suppress Treasury yields, with the 10-year falling back to 4.93% having been the wrong side of 5% over recent days.

The bounce in the equity market which followed allowed investors to regain some poise, and each added to their gains in the year to date to settle at 7.7%, 11.6% and 13.7% for the Dow Jones, S&P500 and Nasdaq respectively.

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To some extent, the markets have done some of the central bank's work for them, with elevated bond yields effectively setting higher borrowing costs. Even so, the spectre of inflation looms large and the screw has been tightened, with many being forced to act.

Apart from the Federal Reserve, where another hike is expected this year, the Bank of Japan joined the European Central Bank in raising rates and more seem to be in the pipeline. The outlier for the moment is the Bank of England, who left rates unchanged yesterday, though for most investors this represents little more than a stay of execution. The market is fully pricing in a hike before the year is out and indeed Bank officials recognise the upward pressure on rates particularly if the Middle East conflict persists.

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Meanwhile, the UK economy received a fillip as retail sales surprisingly rose by 0.5% in August as compared to expectations of a 0.2% decline following a 0.5% fall in July. The outperformance was driven in part by department store sales, which picked up following stock availability issues in July, while on an annualised basis growth of 2.4% was double the previous reading. In the three months to August the hot weather, the World Cup and promotional activity all appeared to have played a part despite renewed inflationary pressure.

After a relatively strong showing in the previous trading session, the FTSE100 opened lower as telecoms weighed on the index, with falls of almost 5% for Airtel Africa  Ordinary Shares (LSE:AAF) and of around 2% for both Vodafone Group (LSE:VOD) and BT Group (LSE:BT.A).

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Some strength in Fresnillo (LSE:FRES) and Endeavour Mining (LSE:EDV), which tracked the gold price higher, were insufficient to offset the losses with the stronger retail sales reading failing to help the retailers. Even so, the primary index remains ahead by 8.6% so far this year in what has generally been a show of resolute strength amid the global volatility.