UK markets were unsurprisingly subject to skittish investor sentiment in early trade. Bucking the trend were the oil majors after the announcement of further US sanctions against Russia, which lifted the price of “black gold” overnight, feeding through to gains of around 1.5% for both BP (LON:BP) and Shell (LON:SHEL).
There was some further mitigation of the losses as Entain (LON:ENT) reiterated its earnings forecast which had been expected to be hit by a series of consumer-friendly sports results over recent weeks. The shares had been marked down by some 17% over the last month, with today’s update resulting in a 9% spike to offset some of that loss.
Nonetheless, the general attitude was circumspect, especially with regards to an uncertain outlook for the UK economy which has already wiped 4.3% from the more domestically focused FTSE 250 in the month of January. In contrast to other indices, the FTSE 100 has posted a marginal gain of 0.6% so far this year, although this is more likely to have been underpinned by the weakness of sterling as opposed to any flights to the UK as an investment destination.
Elsewhere: Inflation concerns rise in US
US markets slumped after an employment report which eliminated any thoughts of a January rate cut from the Federal Reserve and vastly reduced expectations for any moves in March.
Against a consensus of the economy having added 155000 jobs in December, a reading of 256000 blew past estimates, while the unemployment rate fell to 4.1% as against projections of an unchanged 4.2% level. In addition to a reading which showed a slight deterioration in consumer sentiment given inflation concerns, especially with the incoming President likely to introduce measures which could put further pressure on prices, bond yields spiked once again,
Growth stocks were drawn into the weakness, most notably the mega-cap technology sector which propped up sterling returns last year, with Nvidia (NASDAQ:NVDA) falling by 3%. Small-cap stocks, which are particularly susceptible to higher rates, resulted in a fall of over 2% for the Russell 2000 index. The upcoming Consumer Price Index reading on Wednesday should, barring any shocks, further cement the Fed’s likely decision to hold rates at the end of the month.
Of course, the irony is that the market weakness has partly resulted from the unexpected strength of the economy. The fourth-quarter earnings season begins in earnest this week with what will be keenly watched updates from banks such as Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JP Morgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC). The first indications on Friday were promising, with Walgreens (NASDAQ:WBA) shares adding 20% and Delta Air Lines (NYSE:DAL) 9% after both comfortably beat expectations.
Whether the season repairs the bruised sentiment remains to be seen. Indeed, if the market adage “So goes January, so goes the year” is to hold, the early signs are not encouraging. Midway through the month, the Dow Jones is currently down by 1.4% in the year to date, with the S&P 500 and Nasdaq having fallen by 0.9% and 0.8% respectively.
Asian markets followed the trend, although Japan was closed for a holiday. Weakness in China was seen despite some promising economic news, which saw exports growing by 10.7% in December versus estimates of around 7%, with imports rising by 1% against expectations of a 1.5% drop. As such, the trade surplus grew to some $105 billion and the next test will whether the strong export numbers are representative of an improving trend, or whether the figures were simply flattered by companies rushing through orders in anticipation of potential tariffs from the US after the President elect’s inauguration this month