Market snapshot: why it's a cagey start to the working week

Our head of markets discusses US earnings season so far, the big issues at play, and looks ahead to UK bank results. 

A bounce driven by strong corporate earnings finished off a strong week for US markets as the large financials took centre stage.

The US banks displayed strong numbers across the board, with record dealmaking and the further release of bad debt provisions boosting profits. There could therefore be a positive read across for UK banks, where Barclays (LSE:BARC) kicks off the third-quarter reporting season on Thursday.

However, the reporting season is still in its early stages and will face greater challenges than the ones encountered so far. Soaring oil prices are reigniting inflation concerns, consumer sentiment is fragile and the well-reported supply chain disruptions could all take some of the sheen from the strong lead provided by the banks.

Nonetheless, markets have largely regained their poise following the return of risk appetite and, in the year to date, the Dow Jones is now ahead by 15.3%, the S&P500 by 19% and the Nasdaq by 15.6%.

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Asian markets overnight did not receive the bullish memo, with Chinese GDP growth of 4.9% in the quarter representing the weakest pace of growth for a year. Supply chain blockages have also been at play in the world’s second-largest economy, with power shortages, jitters over the property sector, port disruptions and further Covid-19 outbreaks all contributing to slowing growth.

In the UK market, the strength of the oil price has inevitably been positive for the majors within the FTSE100. At the same time, travel stocks have received a boost with perceived oil demand likely to rise following a number of travel restrictions being eased. 

More broadly, the main indices have taken the lead from Asia rather than the US in early exchanges, reiterating the fact that sentiment remains finely balanced given the wider concerns, and with the premier index squarely in the firing line of any weakening of global economic growth.

Even so, the early drift has simply top-sliced some of the solid performances seen in the year to date, with the FTSE100 still ahead by 11.7% and the FTSE250 by 12%.