Market snapshot: turning into a febrile February

Markets are at the mercy of what is turning into a febrile February, with another raft of announcements keeping volatility high on the agenda.

Tariffs remain central to the uncertainty, with President Trump’s latest announcement on Sunday likely to keep investors on edge this week. He has threatened reciprocal tariffs across the board to equal the rates being charged to the US, quite apart from a 25% levy on the import of steel and aluminium.

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Sentiment was already wavering at the end of the week with a survey which showed that consumer sentiment had fallen to 67.8 in February against estimates of 71.3 and perhaps even more concerningly that inflation expectations had risen to 4.3%. The jump in the anticipated rate of inflation was a potential canary in the coal mine in quantifying the effects of tariffs, while also vindicates the decision of the Federal Reserve to hold fire on interest rate cuts for the time being.

Indeed, while the non-farm payrolls headline number of 143,000 jobs having been added in January was shy of the expected 175,000, significant revisions to earlier prints and a fall in the unemployment rate to 4% offered few signs of a labour market under pressure. Average hourly earnings also rose, which will add extra significance to the CPI report due tomorrow, where core inflation is expected to come in at around 3.1%, with the headline number holding steady at 2.9%, with any large deviations from the consensus likely to add to the current jitters.  

A busy week of corporate earnings also ended on a slightly sour note, with Amazon.com Inc (NASDAQ:AMZN) shares falling by more than 4% on a weaker than expected growth outlook for the current quarter, despite having beaten estimates for the quarter on which it was reporting. The calendar continues at a brisk pace this week, with updates from the likes of McDonald's Corp (NYSE:MCD), Coca-Cola Co (NYSE:KO), Super Micro Computer Inc (NASDAQ:SMCI), Cisco Systems Inc (NASDAQ:CSCO) and Moderna Inc (NASDAQ:MRNA) all likely to provide further colour on the state of the economy on the ground.

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Despite the volatility, US markets have managed to keep their heads above water in the year so far, with the Dow Jones having added 4.1% and the benchmark S&P500 2.4% although gains have been limited to 1.1% for the technology laden Nasdaq index after a couple of years of stellar outperformance.

The escalating Sino-American tensions have weighed on investor sentiment in both of the world’s largest economies, although overnight some pressure was eased on hopes for further stimulus measures from the Chinese authorities. In addition, there is something of a potentially forlorn hope that the current levels of retaliatory tariffs which have either been threatened or introduced could be subject to some rather more conciliatory moves over the coming weeks.

Amid the noise, the UK will face its own challenges this week, with the latest release of GDP data expected to show a slight contraction over the last quarter, in another signal of an economy both under strain and in need of further stimulus.

In addition, the UK banks will also come into the full-year reporting spotlight, as Barclays (LSE:BARC) and NatWest Group (LSE:NWG) kick off the season towards the end of the week. Expectations are high for both, and the recent strength of the US banks provided a positive read across, although some subsequent signs of weakness in deal-making activity over January could limit gains for Barclays in particular. Another potential headwind could quite simply be that investors have priced in a robust set of numbers, with the Barclays share price already haven risen by 14% in the year to date (and by 113% over the last year as a whole) and with NatWest having seen similar gains of 10% and 114% respectively.

In the meantime, reports that a stake has been built in BP (LSE:BP.) by serial activist investor Elliott Management lifted the shares by some 7% in early trade ahead of its fourth quarter and full-year update tomorrow. The shares have drifted by around 3% over the last year, in contrast to a gain of some 6% for rival Shell (LSE:SHEL) over that period and it remains to be seen whether this latest speculation will provide a shot in the arm for what has been a relatively disappointing period for the group of late.

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Elsewhere, some strength in the oil price weighed on airline shares, although some strength across the housebuilding sector helped nudged the index higher. The FTSE100 continues to test new highs and has risen by almost 7% so far this year following a possible inflection point which has attracted the attention of a new raft of overseas interest, bolstered by its reputation of being something of a haven destination in turbulent times. Meanwhile, the FTSE250 has shaken off some earlier losses to have moved ahead by 1.6% so far this year, despite the increasingly obvious challenges facing the domestic economy.