Market snapshot: solace away from Wall Street
Just for a change, it's the UK and other markets outside the US attracting buying interest as investors worry about White House policy. ii's head of markets studies latest events both here and overseas.
18th March 2025 08:21
by Richard Hunter from interactive investor
Investors are increasingly turning away from the US for investment inspiration to the benefit of Asian and certain European markets.
While US stocks rose for a second consecutive day, the brutal sell-off of the previous week is fresh in the mind, and the brief respite seems based on little more than the lack of any further bad news. The tariff overhang is taking a pause for breath, but has certainly not gone away. Meanwhile, the apparent indifference of the White House to a possible glide into recession has done little to soothe investor qualms.
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The retail sales report was symptomatic of a market currently searching for any morsels of consolation. An increase of just 0.2% on the month came against expectations of 0.6%, while the previous month’s decline was revised upwards to 1.2% from the 0.9% initially reported. The fact that the figures were not weaker seemed enough to offer some hope that the economy is not yet careering towards recession, with a widely expected no-change decision from the Federal Reserve tomorrow likely to underline its wait and see approach until the implications of the tariff moves can be more properly assessed.
In the meantime, each of the main indices remain down for the year, with the Dow Jones having fallen by 1.7% and the S&P500 by 3.5%, while the Nasdaq remains in correction territory, down almost 12% from its recent high and by 7.8% in the year to date.
Given the pressure which Asian markets were under for most of last year, it is perhaps a little surprising that they are suddenly back in vogue. Quite apart from the Hang Seng being ahead by some 23% this year, where robust inflows into Hong Kong have underpinned sentiment, China is also seeing the benefit of investor interest.
Chinese authorities have seemingly relaxed their attitudes towards business growth, while also putting measures in place to bolster consumer spending. While the property market remains a thorn in the side, the clear objective of boosting the economy to mitigate some of the tariff pain to come has caught the imagination of overseas investors.
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Japan has fared less well, with the Nikkei 225 down by almost 4% this year, although the index gained overnight boosted by a weaker yen which in turn lifted exporters. With strong wage growth in evidence, the Bank of Japan is likely to continue on a path of monetary tightening, although no interest rate change is expected this week. This normalisation of policy has been decades in coming, and the economy seems to be showing sufficient strength to be able to withstand gradual interest rate hikes.
The inevitable link between Wall Street and the primary index in the UK has not been broken, but there are signs that investors are increasingly taking their cue from Asia. The market is also seeing the benefit of overseas interest against relatively undemanding valuations, and with a large mining sector any positive demand news from China can immediately filter through.
Indeed, the likes of Anglo American (LSE:AAL), Glencore (LSE:GLEN) and Antofagasta (LSE:ANTO) rose to the top of the leader board in early trade, while there was also some bargain hunting in the supermarkets. Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) showed some strength after what had been a difficult couple of trading sessions since Asda warned of a possible price war at the tail end of last week.
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The FTSE100 is now ahead by 6.5% this year, having broken record highs over the last couple of months as investors sought solace away from the volatility which has blighted US markets. This has been consolidated by strength in the bank and defence sectors also, while the oil majors have also ground ahead despite a 4% drop in the price of the underlying commodity.
For the time being, the stars are aligning and this could be set to continue in the absence of any animal spirits in evidence across the pond.
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