Market snapshot: investor nerves remain on edge

In the US, brittle sentiment snapped once more as increasingly aggressive rhetoric and actions in the Middle Eastern weighed heavily on growth prospects.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Escalation and duration of the conflict remain the key words, and at present there is little sign of either reducing. Strikes appear to be increasing rapidly and both sides involved in the conflict are ramping up the war of words as well as military activity. The US dollar has resumed its status as a source of haven capital, but the oil price is at the eye of the storm and causing most of the investment concerns.

Of course, oil’s uses are many and varied, from manufacturing, agriculture and construction to the more obvious fuel for airlines and petrol at the pumps. The price has risen by 40% since the beginning of the year and such an inflationary effect could severely temper business investment and hiring, as well as the propensity of the consumer to spend given higher prices.

• Popular income stock makes big dividend cut
• ii view: confident Aviva raises dividend by 10%

Indeed, even the oil majors, whose share prices have unsurprisingly seen the benefit of the spike, will be closely watching for any further surges, since at a certain point it will become uneconomical to drill for new sources, which would be an additional supply constraint.

In the meantime, stocks in the US remained under pressure with the airlines continuing to fall sharply, as well as bellwethers such as Caterpillar Inc (NYSE:CAT) who would be impacted by a global growth slowdown. It remains unclear whether a resumption of oil flows through the Strait of Hormuz can be engineered, and over what timeframe, let alone whether the costs of heightened insurance are surmountable. 

Although Dow futures are currently pointing slightly higher at this early stage, the moves have dragged each of the main indices into the red in the year to date, with losses of 0.2% for both the Dow Jones and S&P500 and of 2.1% for the Nasdaq.

• Tesco shares tipped to keep rising
• eyeQ: bearish signal says time to sell

It is not often that the monthly non-farm payrolls report finds itself being secondary to events elsewhere, but it nonetheless retains the ability to move the market. The consensus is that 60,000 jobs will have been added in February, as compared to 130,000 the previous month, although that figure could be subject to downward revisions. 

Unemployment is expected to remain unchanged at 4.3%, but coupled with the possible return of inflation, investors are increasingly resigned to fewer interest rate cuts remaining on the table this year.

The FTSE100 has not escaped the tumult with some bruising sessions over recent days, despite its high exposure to oil, defence and resource stocks as well as the strength of the dollar which is a tailwind for many of its constituents given a high level of overseas earnings, especially the US. Nonetheless, those factors have mitigated the declines and leaves the premier index almost 500 points lower than its recent high, but still 5% higher in the year to date.

• Is an ISA the missing part in your retirement plans?
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Inflationary concerns are a particular drag for the same reasons as elsewhere, not least of which the lessening likelihood of a more immediate rate cut from the Bank of England to stimulate a largely ailing domestic economy. 

Even so, there was some respite from the pressure of recent days as the FTSE100 opened higher, with selected cyclical, risk-on stocks leading the way. Sentiment nonetheless remains on a knife-edge and any further deterioration in the Middle East would lead to more investment tension.