Market Report: Focus on US Economy, Banking Worries Continue, Ad Giant WPP Stays Bullish

• Cautious wait for US GDP snapshot to help assess if interest rates will rise further.

• Banking worries swirl as First Republic’s position becomes more precarious.

• Brent Crude falls to $77 a barrel as recessionary fears about the US clamber upwards.

• WPP benefits from firms spending to keep brand power intact to maintain margins.

Market Report: Focus on US Economy, Banking Worries Continue, Ad Giant WPP Stays Bullish
Market Report: Focus on US Economy, Banking Worries Continue, Ad Giant WPP Stays Bullish

By Susannah Streeter, head of money and markets, Hargreaves Lansdown:

Investors are waiting for the curtain to go up on the next instalment of the drama of the slowing US economy with the drag effect of rapid interest rates hikes expected to start showing up in today’s snapshot of output.

The stage is set for a report of strong spending in the first three months of the year, helping lift activity, with GDP growth forecast to come in at 2% on an annual basis, down from 2.6% in the fourth quarter. But conditions towards the end of the quarter are expected to show a deterioration, as banking worries swirled, with companies and consumers becoming more cautious, so the figure may well surprise on the downside.

With the banking crisis not yet at an end, confidence in First Republic Bank falling like a stone, credit conditions are expected to deteriorate further, with a pullback in lending across the sector expected to weigh even heavier this quarter. The beleaguered lender is desperately trying to find buyers for its assets as customers and investors flee, and its downwards spiral looks unstoppable, unless major new funding is secured. Regulators appear to be hanging back with no rescue package yet on the cards. Worries about the knock-on effect of yet another collapse is unsettling investors, with financial markets staying jittery.

Backstage policymakers will be trying to assess to what extent the banking repercussions will act as a drag on growth, as they analyse the prospects for sticky core inflation. If growth comes in below expectations for the second quarter, indicating monetary tightening is taking effect more quickly, it may pause rather than raise rates again next month. So, a weaker GDP figure could help lift stocks, given how investors have been fretting about the impact of yet more hikes on high growth valuations and the overall economy.

The easing of oil prices, driven down by expectations of a global slowdown in growth is helping to relieve inflationary pressures but is pushing energy companies into the red. Brent Crude scuttled down to $77 a barrel, back at levels last seen a month ago, erasing all gains from the output cut from OPEC+ as recessionary fears about the US clamber upwards. But the Fed is still concerned about the tighter jobs market and sticky core inflation, so the unemployment figures out from the Labor department will be closely watched for signs employers are becoming more reticent about hiring.

The FTSE 100 has opened lower, amid uncertainty about the trajectory for the US economy and the knock-on effect worldwide, particularly with banking woes causing so much concern. Although there are fears a global slowdown will make businesses hold back on spending, advertising giant WPP has its full year targets nailed to its mast and claims it’s shipshape for any stormy waters ahead. It has come out with a bullish slant to concerns about growth, indicating it is seeing customers use marketing more to prop up sales and justify prices. Spending has continued to click upwards by clients in the first quarter with underlying sales up 2.9%. The company is confident it will meet growth targets of 2-5% this year with operating margins of around 15%. So far it seems big companies around the world are willing to splash out on campaigns to retain their brand pulling power and keep their own margins intact, but it’s still far from clear how long that will continue.