Market snapshot: investors start week in cautious mood

Energy prices, interest rate policy and Covid in China continue to dominate investor focus Monday. Our head of markets has the latest.

Another choppy session saw US markets up on Friday but down for the week, following Federal Reserve comments which reiterated resolve to tame the inflation issue.

Investors sought some cover in defensive shares, which offset energy sector weakness. Concerns over Chinese demand following the latest Covid-19 developments has left the oil price up by 12% in the year to date, a far cry from the heights it scaled some months ago – in June, the price was ahead by over 50%.

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Lingering concerns that over-tightening by the Fed could lead the country into recession remain at the top of the watchlist. For the moment, the vitally important US consumer has generally remained in spending mode, although there are some concerns that this has been enabled by individuals taking on more debt. There are also some mixed messages, with rising retail sales for October and strong numbers from the likes of Walmart Inc (NYSE:WMT) and The Home Depot Inc (NYSE:HD) being partly offset by less comforting updates from Target Corp (NYSE:TGT) and Amazon.com Inc (NASDAQ:AMZN).

Black Friday follows this week in what will be another test of consumers’ resolve. Fed minutes due on Wednesday are likely to underline the more hawkish comments which various of its members have been making over recent days. These add to what could see a number of distractions leading to thin trading, in a week shortened by the Thanksgiving holiday and with the World Cup having begun.

In the meantime, the major indices have yet to repair the damage which the economic backdrop has caused. In the year to date, the Dow Jones remains down by 7%, the S&P500 by 17% and the Nasdaq by 29%.

Asian investors were also in a sombre mood following further Covid-19 outbreaks which resulted in further lockdowns. In turn, this has stifled hopes of an opportunity for the Chinese economy to begin a recovery, while also providing a reminder of the country’s economic woes which range from deteriorating consumer sentiment to an ailing property sector. The likelihood of sustained and dampened activity has also impacted commodity prices and oil in particular, with the situation potentially lasting some more months in light of the country’s inability to stem the flow of cases thus far.

UK investors were also unsurprisingly ambivalent in early exchanges in the absence of any obvious positive catalysts. The more domestically focused FTSE250 continued to reflect the general pessimism on prospects for the UK economy and has now fallen 18% so far this year.

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Further concerns over worker shortages and the possibility of strike action over Christmas have added to the more recent gloom surrounding the traditionally stronger trading period of the next few weeks.

The FTSE100 also failed to make headway in the absence of any stimulus. A mildly weaker open saw both sectors and stocks with Chinese exposure in the firing line, leaving the index marginally down by 0.3% so far this year. That such a tepid showing should be one of the better comparative performances on the global stage is confirmation that a year fraught with obstructions could yet provide further disappointments.