Market snapshot: rates afterglow fades as focus shifts to earnings season 

The afterglow of the Federal Reserve cut faded on Friday, although the main indices finished the week higher and a marginal gain pushed the Dow Jones to a fresh record high.

Inevitably opinion will remain split on whether the Fed had slipped behind the curve and therefore needed to begin its monetary easing with a bang, or whether the move was pre-emptive in giving the economy a boost at a time when the jobs market is clearly cooling. For its part, the central bank maintained that the move was designed to support the economy rather than rescue it and, on balance, investors have taken the message on board.

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By the same token, thoughts are already heading towards the next Fed meeting in November, where at this early stage the predictions are a mirror of the announcement just passed. A further cut of 0.25% is expected, while the chances of another 0.5% reduction is evenly split.

There will be many data points before the event, of course and this week will bring updates on manufacturing, consumer confidence and perhaps most importantly, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) report on Friday. The current expectation is that the PCE will show a monthly increase of 0.2%, annualised to 2.7%, with the headline figure slowing to 2.3% and edging nearer towards the 2% target.

This week also marks the last full trading week of the third quarter, and so a new reporting season will soon be upon us. Given the generally benign economic backdrop, expectations will be high for the numbers emanating from the corporate world, and as ever the accompanying guidance comments will provide extra colour. In the meantime, the new record high for the Dow Jones leaves the index ahead by 11.6% in the year to date, with both the S&P500 and Nasdaq having added 19.6%.

Asian markets were generally higher overnight, although trade was thinned by a public holiday in Japan. The Nikkei 225 rallied by more than 3% last week, driven in a part by a weaker yen which heightened the attractiveness of the country’s exporters. The Bank of Japan's decision not to tighten monetary policy any further for the time being also provided some relief for investors who had been fretting around the inflationary picture.

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Chinese stocks managed a small gain, but remained down over the last week as the authorities provided more investor disappointment in leaving longer-term interest rates unchanged. There was a glimmer of some relief overnight as short-term rates were slightly shaved, although the jury remains out on whether China is on track to meet its growth target for the year. This has left many investors on the sidelines, which is likely to remain the case until such time as there are some discernible signs of an economic recovery.

UK markets were unable to stage a meaningful recovery after a disappointing end to last week, which was driven in part by a stronger-than-expected retail sales print, in turn lifting sterling, thus unsettling the premier index where the majority of earnings come from overseas.

AstraZeneca (LSE:AZN) shares slipped after a disappointing update on their latest cancer drug treatment, while a broker downgrade weighed on shares of B&M European Value Retail SA (LSE:BME).

More positively, Rightmove (LSE:RMV) shares moved higher as the bid battle intensified, with the group receiving an improved offer from the Australian company REA Group. Marks & Spencer Group (LSE:MKS) was subject to a broker upgrade which lifted its shares, further propelling a rally which has seen the price rise by 38% so far this year, as the group edges nearer to former glories on the clothing front and still underpinned by its strong food offering.

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Even so, the broader markdown dragged the main indices slightly lower, leaving the year to date performances for the FTSE100 and FTSE250 nonetheless positive by 6.3% and 5.6% respectively. A generally quiet week to come on the economic and corporate calendar looks likely to provide few domestic clues, with the underlying performance of sterling continuing to be a driving factor.