Market snapshot: conflict caution continues

Trade and geopolitical conflicts continue to dominate the agenda, leading to investor tension across the globe.

For the US, there are many moving parts for consideration. Deteriorating economic data over the last few trading sessions has led to unease given a potential resurgence of inflation following the new President’s aggressive tariff threats. Having confirmed that the proposed measures on Canada and Mexico will proceed, and with the US relationship with China continuing on its fractious path, it seems increasingly likely that a trade war of some description will follow.

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At the same time, this clouds the picture for the Federal Reserve, which may well sit on its hands until the inflationary situation becomes clear. There are few indications that the economy may be edging nearer stagflation, but the upcoming Personal Consumption Expenditures index release at the end of the week will provide further food for thought. The Fed’s preferred measure of inflation is expected to show a rise of 0.3% in core PCE, annualised to 2.6% from a previous 2.8%, but readings from other data such as PPI and CPI for January have skewed the risks to a higher than expected number.

Elsewhere, the mood is equally circumspect. NVIDIA Corp (NASDAQ:NVDA) will report earnings tomorrow with elevated expectations, let alone the emerging Asian threats which recently derailed its hitherto stellar share price performance.

In the meantime, the Nasdaq has now fallen into negative territory for the year, with Nvidia falling by over 3% yesterday and the more recently emerging star Palantir Technologies Inc Ordinary Shares - Class A (NASDAQ:PLTR) dipping by 10.5%, although the latter remains up by 20% over the last couple of months.

A further cautionary note came following the release of numbers from Berkshire Hathaway Inc Class B (NYSE:BRK.B), led by the legendary Warren Buffett. While the numbers were strong enough to propel a share price gain of over 4%, concerned investors noted a lack of new equity investment, plus an astonishing cash pile of $334 billion as being indicators that the market for value stocks is currently limited given generally lofty valuations.

Further consumer confidence readings are imminently due, and investors will be hoping for some improvement on last week’s numbers, which dipped sharply and referred to a lessening propensity to spend given the current outlook. In the meantime, the main indices are clipping gains for the year, with the Dow Jones now up by just 2.2%, the S&P500 by 1.7%, while the Nasdaq is now down by 0.1% following the recent selling pressure.

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Asian markets also felt the force of tariff traumas, with declines in Japan following a public holiday and a weak open to the Hang Seng, which dipped by almost 3% before halving that loss as the session progressed. After some recent strength, the likes of Alibaba Group Holding Ltd ADR (NYSE:BABA) fell by 8% as concerns grew over the implications of further restrictions on semiconductor technology movements between China and the US, let alone the broader economic tensions which show few signs of abating at present.

UK markets were unsurprisingly sombre at the open given the leads of both Wall Street and Asian markets, with the premier index struggling to build on its more recent defensive defiance of market volatility elsewhere.

A decline across the mining sector reflected some reticence for investors to engage in risk, while the announcement that the Unilever (LSE:ULVR) CEO would be stepping down caught investors on the hop, with the surprising but unwelcome news sending the shares almost 3% lower. The development comes at a strategically important time for the group, which is spinning off its ice cream business while pursuing cost savings of €850 million, and where the CEO was seen to have had a strong start to his tenure following four consecutive quarters of underlying volume growth. 

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Even so, a nudge into positive territory for the index as a whole followed some buying interest in the banks after a chequered few trading sessions and a generally strong earnings season.

The standout performer, however, was Smith & Nephew (LSE:SN.), whose shares rallied by some 9% following full-year numbers which sailed past expectations, bolstered in part by strength in its US business contributing to an overall increase of 55% in reported operating profit. Well-received numbers also lifted the likes of Croda International (LSE:CRDA) and UNITE Group (LSE:UTG), all of which contributed to a marginal market gain which leaves the FTSE100 ahead by 6.1% so far this year.