Market snapshot: brief relief and nothing to see here on rates

The relief rally which markets staged on Friday was not enough to prevent an overall loss for the week, with investors searching for largely elusive positives.

One area of brightness was that the latest addition to market woes, namely the threat of a US government shutdown, receded following policymaker comments.

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However, in overall terms the news did little to mask the underlying concerns. Escalating trade tensions not only threaten global supply chains and inflation, but are also having an impact on consumer sentiment, which is vital to the health of the US economy. The latest reading revealed that confidence had dropped to a level of 57.9, significantly lower than the 63 expected, with the irony being that some of Friday’s market strength was due to the lack of any further tariff threats from the White House.

Mega cap technology stocks led the bounce, with the likes of NVIDIA Corp (NASDAQ:NVDA), Meta Platforms Inc Class A (NASDAQ:META) and Tesla Inc (NASDAQ:TSLA) rising by between 3% and 5%, although these gains were insufficient to erase those stocks’ recent declines. Nvidia and Tesla, for example, are down by 12% and 34% respectively so far this year, with the Nasdaq itself behind by 8.1% and remaining in correction territory. The other main indices have also seen pressure which has resulted in declines of 2.5% and 4.1% for the Dow Jones and S&P500, with more challenges to come this week.

Retail sales kick off the weekly calendar and will give some indication as to whether the forward indicator of consumer confidence will be aligned with the lagging indicator of actual behaviour.

The Federal Reserve interest rate announcement later in the week is usually eagerly anticipated, but on this occasion markets have unanimously priced in a no-change decision as the Fed continues to monitor the current pressures, while also attempting to anticipate some of the obstacles to come, not least of which is the prospect of higher inflation as a result of the potential tariff fallout.

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Such uncertainty has led investors to seek alternative solutions, and Asia has been a beneficiary of the rotation, despite also being in the eye of the tariff tempest. In the year to date, the Hang Seng index is in its own bull market having risen by 23%, while there also increasing signs of life in China, with a 5% gain which has been driven by the combination of warming investor sentiment alongside a Beijing boost where the authorities have begun to pull certain levers in order to revitalise the economy.

The latest data revealed that industrial output rose by almost 6% in the first two months of the year, with retail sales ahead by 4% although the property market continued to lag, with a 10% drop in investment and a further decline in house prices.

Nonetheless, the more recent pledges from the authorities, which have ranged from an easing of the restrictions on business to an order for financial institutions to develop and encourage consumer borrowing, could yet reawaken the pace of growth which has eluded the country more recently. 

Another beneficiary of investors seeking alternatives away from the squeezed US markets has been the FTSE100, which has gained by 5.7% so far this year. This has been achieved despite some sterling strength against a weakening US dollar, which would normally work against the index given its proliferation of dollar earners, and is in addition to an average dividend yield of 3.5% which provides a further attraction in terms of total return.

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In opening exchanges, Phoenix Group Holdings (LSE:PHNX) was the star performer, rising by more than 5% after upgrading its profit outlook, which read across to the likes of Legal & General Group (LSE:LGEN) and to a lesser extent Prudential (LSE:PRU), which reports its full year numbers on Wednesday. Meanwhile, the repercussions of a potential price war following last week’s Asda announcement weighed heavily on food stocks, with the likes of Marks & Spencer Group (LSE:MKS), Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) falling up to 3% at the open.

Domestically, there will also be an interest rate decision, although the likelihood of a rate cut has been priced out by the markets until May at the earliest. The spectre of inflation, and specifically stubbornly high wage growth, continues to tie the hands of the Bank of England at a time when the UK economy is so clearly in need of a shot in the arm.

The impending fallout from the Budget measures and the generally tough backdrop has also followed on to the performance of the FTSE250, which is now down by 3.1% in the year to date.