Market snapshot: will cautious optimism survive these two key data releases?

Investors go into the last trading day of the month in a vein of cautious optimism, with recent economic data playing into the narrative of a Federal Reserve interest rate pause next month.

Following news earlier in the week confirming disappointing consumer confidence and a larger-than-expected drop in job openings in the US, there were additional signs that the possibility of an economic soft landing is strengthening.

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

ADP private payrolls revealed that 177,000 jobs were added in August as compared to 371,000 in July and below expectations of 200,000. At the same time, annual GDP growth was revised downwards to 2.1% from the previous 2.4%, or to 1.7% on a quarterly basis.

The combination of these data is increasingly suggesting that the economy continues to grow, but is exhibiting signs of slowing, which would be an ideal scenario for a soft landing if the data is maintained. Some had previously been expecting that the US would be wandering into recessionary territory by now, but both corporate and economic releases have defied the doom-mongers of late.

This week ends on a twin set of numbers which both have the ability to shift this optimistic outlook. The Fed’s preferred measure of inflation, the Personal Consumption Expenditures price index, is released later today, with core PCE expected to rise by 0.2% from the previous month, annualised to 4.2% from a previous 4.1%.

Tomorrow’s non-farm payrolls report will then provide further colour as to whether the labour market is actually softening, with a consensus that 170,000 jobs will have been added in August compared to 187,000 the previous month, with unemployment remaining unchanged at 3.5%.

With traders currently assuming an interest rate pause for September, the question remains as to whether the end of the hiking cycle has been reached. Such an outcome would be positive for growth stocks in particular, which has enabled ongoing strength within the mega cap technology sector. Despite a month of some profit taking which is likely to result in net losses for August, the main indices are all comfortably ahead in the year to date, with the Dow Jones having added 5.3%, the S&P500 18% and the Nasdaq 34%.

• An old-fashioned business about to set new share price high
• Stockwatch: why I’ve tweaked my rating on microchip star Nvidia

In Asian markets, China remains the area of both focus and concern. The latest manufacturing activity release showed that the index rose to 49.7 in July, which marked an improvement but still left the number in contractionary territory for the fifth straight month. There was some relief that the figure had not worsened, and at that level the index remains on the cusp of nudging into expansion.

However, the worries of an embattled property sector continue to weigh heavily with China’s largest private property developer Country Garden warning that default risks were increasingly possible at its current rate of financial performance. Added to sluggish consumer demand and high youth unemployment, investors are increasingly calling for more drastic stimulus measures from the authorities which have so far fallen on deaf ears.

In the UK, markets opened marginally behind, with investors largely keeping their powder dry ahead of the two major releases to come this week from the other side of the pond. All things being equal, a soft landing in the US should be positive for a premier index with a significant exposure to the fortunes of the world’s largest economy. In addition, any boost in stimulus from China could also help propel a clutch of stocks with exposure to the region, such as Prudential (LSE:PRU), Burberry Group (LSE:BRBY), HSBC Holdings (LSE:HSBA) and Standard Chartered (LSE:STAN).

• FTSE 100 dividend stocks will pay out almost £16bn in September
• Insider: boss ups stake at FTSE 100 high-yielder
• Will interest rates really peak in September?

In early exchanges, the muted moves were driven by a broad mark-up and some bargain hunting within the beleaguered telecom and housebuilding sectors, including the soon to be relegated Persimmon (LSE:PSN). These gains were offset by stocks being marked ex-dividend, such as mining stocks Antofagasta (LSE:ANTO), Endeavour Mining (LSE:EDV) and Glencore (LSE:GLEN), and Croda International (LSE:CRDA).

The moves leave the FTSE100 ahead by a meagre 0.2% in the year to date, with its domestic sibling, the FTSE250, trailing by 1.5%, largely based on a UK economy which has further economic pain to come, not least in the form of likely additional interest rate hikes.