Dubai: The resignations of key officials in the US government, which has triggered an unease on policy paralysis, along with the upcoming central bankers meet at Jackson Hole, will take centre stage this week, after the stock market indices hit record highs recently.

“The recovery in US and global stocks following the early August scare on North Korea proved short-lived with multiple uncertainties dragging key indices lower on Thursday. The political frictions between US president Donald Trump and Congress continue to escalate with his administration looking increasingly dysfunctional and isolated,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The Dow Jones Industrial Average closed 0.35 per cent lower at 21,674.51 on Friday, after the index witnessed record highs a few weeks ago. The S&P 500, which has also been on a record breaking spree, closed 0.18 per cent lower at 2,425.55 at the close of trading last week.

“There has been no significant change in economic data or corporate earnings outlook over the past few weeks, investors have become increasingly cautious and their [President Trump and his team] actions are having greater impact across asset classes,” Vaqar Zuberi, head of hedge funds at Mirabaud Asset Management, told Gulf News via email.

“This is likely to continue until trading desks return to full staffing levels in September,” Zuberi said.

Much of the record breaking highs had been due to President Trump’s promise to cut taxes and boost infrastructure spending, among others. And those policy measures are yet to materialise. The Dow Jones index witnessed a peak of 22,179.11 earlier in August, and has registered gains of 9.75 per cent so far in the year.

Traders will also eye the Jackson Hole meeting of top most central banks in the world to be held later in the week.

For the US Federal Reserve, all eyes will be on inflation and wage growth and its impact on the next policy move from Janet Yellen.

“The Fed continues to be worried over muted inflation but is ready to act if data supports an improving outlook. We keep our forecast of a rate hike in December and a strengthening US dollar over the coming months,” said Stephanie Lindeck, Economist, Julius Baer.

Traders will also look at the European Central Bank as to when it will start to wind down its quantitative easing programme.

Oil outlook

In the oil markets, traders will eye the drawdown in US stockpiles and compliance from the Organisation of Petroleum Exporting Countries (Opec) and non-Opec producers for compliance on the cut in oil production.

On Friday, Brent crude closed 3.31 per cent higher at $52.72 per barrel.

“As long as Brent stays above $48 (Dh176) per barrel, we maintain the view that this current weakness is only an attempt to find the lower end of a range which offers resistance ahead of $55,” Hansen said.

West Texas Intermediate closed 3.02 per cent higher at $48.51.

Factbox: Pound vulnerable as UK prepares to provide Brexit plan details

Brexit may dominate factors influencing the pound’s fortunes again this week, with the UK set to lay out its position in at least three areas of negotiation with the European Union. Uncertainty about the next round of Britain-EU talks due by month-end could weigh on sterling, which was the worst-performing Group-of-10 currency last week. The UK is said to be preparing to publish on Monday details on how it will treat confidential EU information obtained before Brexit and on goods placed on supply chains in the EU single market.

The pound was at $1.2860 as of 5:50pm in London on Friday, having slid more than 2 per cent in three weeks. Sterling was at 91.36 pence to the euro, having reached 91.50 pence earlier, its weakest level in 10 months.

While more information on the government’s plans is a “favourable development,” sterling could be stuck as “there’s a number of potholes on the road forward in negotiations,” said Lee Hardman, foreign-exchange strategist at MUFG in London. “The market is still very cautious and uncertain on what the final outcome will be.”

— Bloomberg