Market snapshot: bulls in charge ahead of Autumn Statement

There are several key economic readings this week, but Thursday's Autumn Statement is the big one. Our head of markets explains why what happens now will likely set the tone for the rest of the year.

Modest gains on Friday were enough to seal a positive week for US markets, driven largely by a lower-than-expected inflation print prompting hopes of easing monetary policy to come.

That said, comments from a Federal Reserve member made the inevitable point that one swallow does not make a summer, and that it would require a number of similarly soft reports before true easing could be considered. In the meantime, the terminal interest rate is expected to land between 4.75% and 5%, with a rate rise of 0.5% expected in December.

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Growth stocks also benefited from the rally, particularly the beleaguered technology stocks which have borne the brunt of a switch from growth to value, as well as a rising interest rate environment.

Some traders point to the fact that some of the boost was due to short-covering as opposed to any fundamental change, which casts doubt on whether the positive momentum can be sustained. In addition, the outcome of the midterm elections implied little room for major new policy initiatives, which is traditionally a positive sign for markets.

Despite the bounce, the tech-heavy Nasdaq index remains the weakest of the major indices in the year to date, having fallen by 28%, while the Dow Jones has declined 7% and the S&P500 16%.

Asian markets also took the bullish baton, propelled by China’s decision to ease some of its zero tolerance on Covid-19, despite fresh reported outbreaks, suggesting that the authorities are now officially recognising the damage being done to the economy. At the same time, reports that there could be extra support for the embattled property sector was a further boost to sentiment, sending the country’s real estate index higher by 5%.

For the UK, the usual mixed bag of domestic and overseas-facing indices was in evidence. The quasi-barometer of the UK economy, the FTSE250, showed further weakness ahead of a pivotal week for economic prospects, and remains down by 17% in the year to date. 

Apart from several economic readings due this week ranging from inflation to retail sales, the Autumn Statement on Thursday is likely to reveal sharp fiscal tightening. With the economy already careering into recessionary territory, this would place further obstacles in the way of escaping stagflation, despite the fact that the Bank of England may have peaked in terms of its aggressive interest rate hiking policy.

The FTSE100 on the other hand is now down by just 0.5% in the year to date, having eased slightly from a brief foray into positive territory last week after a slight bounce in sterling – itself the result of some dollar weakness as opposed to any UK economic improvements – weighed on an index which largely relies on overseas earnings.

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The early gains in the index Monday were notably cautious, with buying interest in defensive stocks such as the tobaccos, defence and consumer staples, as opposed to any broad brush mark-ups on improving sentiment. 

The outcome of this week’s significant economic hurdles are likely to set the tone for the remainder of the year. This will be projected both in terms of prospects and international investor sentiment, the latter of which has been relatively sanguine towards the premier index in comparison to global peers of late.