Markets have reached the midpoint of a highly consequential week amid significant volatility, as investors brace for key economic data releases in the US.
US retail sales data has already raised questions. It came in at an underwhelming level, with buying flatlining in December despite the festive season. This suggests the economy may be struggling under the weight of the current Federal Reserve base rate of 3.5%–3.75%.
This week will also see both the key metrics in steering Fed policy updated in the form of the jobs report and inflation read-out.
January jobs data will be released today (Wednesday 11 February) having been delayed by the government shutdown, and is expected to be underwhelming. Any signs the employment picture is even worse than expected could have a significant impact on rates forecasts.
The Bureau of Labor Statistics will also report its final revisions for payrolls going back to March 2025, providing greater clarity on exactly how well the world’s largest economy is doing.
Today’s release is only setting the table for an even more important update on inflation, due on Friday. Readings have been steady but stubbornly above the Fed’s 2% target in recent months. Any signs of a notable drop or rise would likely prompt significantly further volatility in markets.
Rumbling along in the background is the US’s negotiation with Iran over its nuclear projects, and the prospect of a fresh military conflict in the Middle East if there is a breakdown in discussions.
The volatility is being further heightened by investors’ fears the rise of AI could create big losers in the corporate world as well as spectacular winners.
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As the technology’s capabilities and applications become clearer, investors are questioning the viability of companies that provide services AI models have begun to directly compete with, such as consultants and analytics firms.
Turning to the UK specifically, the FTSE 100 continues to grind higher near record levels, with the main exchange its constituents are traded on subject to activist attention.
AJ Bell investment director Russ Mould said: “The FTSE 100 ticked higher on Wednesday, supported by gains in bank and resource stocks and chatter that London Stock Exchange Group has been targeted by activist investor Elliott.
“A recovery in commodity prices after the recent volatility helped give the miners and energy stocks a lift. Oil was supported by US-Iran nuclear deal uncertainty, while gold moved back through $5,000 per ounce.”
He continued: “On the flipside, companies caught up in AI disruption fears linked to the launch of new tools by Anthropic, apart from London Stock Exchange Group, were back in the market’s bad books.
“The aftershocks from last year’s US government shutdown may only be mild tremors at this point but they are reflected in the slightly later than expected timing of today’s US jobs number. A weaker number than anticipated might raise expectations for a rate cut when the Federal Reserve next meets in March.”
Derren Nathan, head of equity research, Hargreaves Lansdown, added: “US stock futures are erring on the side of optimism ahead of jobs data expected later on. Hopes for a rate cut by the Fed next month have improved slightly after American retail sales unexpectedly flatlined in December, with shares in Costco, Target and Walmart all ending down on Tuesday.
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“Despite the improving outlook for discount rates sentiment around AI continues to weigh on tech valuations, as investors try to second guess which industries are likely to feel the greatest disruption.
“This time, it’s the US brokerages such as Raymond James and Charles Schwab which are under fire after Altruist released a new tax-planning tool. The market reaction looks to be more knee-jerk than fact-based, but this sort of volatility is likely to persist for a while yet.”
