Market snapshot: will pause for breath be short-lived?

US markets weakened after nine days of progress, as apparently deteriorating negotiations over the conflict lifted the oil price once more and sent Treasury yields higher alongside.

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It remains to be seen whether the pause for breath is short-lived, as subsequent reports revealed that a ceasefire had been agreed between Israel and Lebanon, which sent the oil price back down to $97 per barrel, where it has spent most of the last couple of weeks. There have been numerous reports of renewed strikes between the US and Iran, mostly drone-driven, and there is little evidence to suggest that any meaningful progress is being made on negotiations, despite the President’s protestations (again) that something could happen “this weekend”.

Quite apart from the inflationary impact of an elevated oil price, higher Treasury yields could yet undermine growth in the world’s largest economy. The average long-term US mortgage rate has already risen to a nine-month high, while smaller companies which rely on borrowing for growth could also be affected. The Russell 2000 index slipped by 1.3% as a result, although the smaller cap benchmark remains ahead by more than 15% this year.

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Meanwhile the Federal Reserve has conflicting factors to consider in delivering its dual mandate which incorporates inflation and the labour market. The pinch of higher energy and tariff-related prices is beginning to be felt in some quarters, yet growth accelerated more strongly than had been estimated by economists, especially in construction, agriculture and other services.

The announcement of further proposed tariffs of at least 10% on many of its trading partners due to forced labour concerns will do little to alleviate general inflationary concerns. Indeed, with the labour market showing surprising resilience and with inflation starting to take hold, the consensus has now completely shifted to expect one interest rate hike from the Fed this year.

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On the other hand, it seems a matter of time until there is a resumption of gains in the technology sector after a bruising day which saw losses of more than 3% for the likes of NVIDIA Corp (NASDAQ:NVDA), Microsoft Corp (NASDAQ:MSFT) and Dell Technologies Inc Ordinary Shares - Class C (NYSE:DELL) and of 5% for Oracle Corp (NYSE:ORCL).

The generally cautious tone of sentiment which weighed on US markets (and in turn, on Asian stocks overnight) has nonetheless done little to arrest the direction of travel, whereby in the year to date, the Dow Jones, S&P500 and Nasdaq have posted gains of 5.5%, 10.4% and 15.5% respectively.

There was also little to cheer in the UK, as the downbeat sentiment led to both of the main indices limping to a weaker open. Additional technical pressure weighed on the FTSE100, where the usual selection of stocks were marked ex-dividend, today including the likes of Marks & Spencer Group (LSE:MKS), Sainsbury (J) (LSE:SBRY), Sage Group (The) (LSE:SGE) and Vodafone Group (LSE:VOD). There were minimal gains for Berkeley Group Holdings (The) (LSE:BKG), Rightmove (LSE:RMV) and Mondi (LSE:MNDI), but far from sufficient to prevent confirmation that each will be relegated from the premier index this month.

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Losses were limited, however, as there was some broad bargain hunting in the banking and housebuilding sectors, which have tended to shoulder the burden of a weak economic outlook for the UK. The main indices nonetheless are holding on to gains in the year to date, with rises of 4% for the FTSE100 and of 3.1% for the FTSE250 even though both remain some way off from the highs hit some months ago.