Dubai: With global markets coming off the back of fresh record highs, the current rallying momentum looks set to continue as analysts see stocks taking aim at even bigger peaks in the week ahead.
The US Federal Reserve’s announcement that it will wind down its bond buying, the first big step away from the easing measures it put in place to fight the pandemic, helped bolster the US and markets elsewhere last week.
The S&P 500 gained 2 per cent for the week, ending at a record level. The Dow, also at a new high, rose 1.4 per cent, while the Nasdaq jumped 3 per cent to another record.
US bond buys unwind
The Fed expects to fully wind down its $120 billion-per-month bond purchases by the middle of next year, at which point it is expected that the central bank of the world’s largest economy will start raising interest rates.
As expected, the Fed announced it would trim its bond buying by $15 billion a month from this month, while leaving open the option to quicken or slow the pace as needed.
Multiple economists flagged how Fed Chair Jerome Powell sounded slightly less sure inflationary forces would prove to be fleeting, enough to hit longer-term bonds and “bear steepen” the yield curve.
Why are stocks rising?
Analysts evaluate how the current rally is indicative of investors sounding the all-clear for the equities market at least in the short-term as easy money will continue for a while worldwide.
The Bank of England, in announcing it would keep interest rates on hold, dashed investors’ expectations for a hike.
More economic data due
In the US, on the economic front, the producer price index and consumer price index are reported Tuesday and Wednesday, respectively. Economists expect both reports to remain elevated for October.
Elsewhere in the world, the week sees the release of initial GDP figures for the UK, along with US and Chinese CPI (inflation) and the Germany’s crucial ZEW figure, which measures the level of optimism that analysts have about the expected economic developments over the next 6 months.
Earnings quiet down
However, on the corporate front, the earnings season is quietening down worldwide but there are still a number of reports in the coming week, including The Walt Disney Company in the US and the first-half figures from M&S and Burberry in the UK.
An upbeat third-quarter earnings season, coupled with positive commentary about future growth, has helped investors in equities as they largely dismiss concerns around rising prices, supply chain snags and a mixed macro-economic picture.
Stocks to rise further?
Globally, analysts expect the existing positive momentum in markets to continue.
MSCI’s all-country world index had posted its fourth consecutive record closing high last week. MSCI’s gauge of stocks across the globe gained 0.17 per cent while the pan-European STOXX 600 index rose 0.41 per cent.
In Asia overnight, Japan’s Nikkei climbed 0.9 per cent and touched it’s highest in a month, while MSCI’s broadest index of Asia-Pacific shares outside Japan crept up 0.4 per cent.
The Asian index has been burdened by a spike in new coronavirus cases in China that threatens to curb consumer spending in an already slowing economy also hampered by property market strains.
Bond yields, oil prices fall
US Treasury yields fell and the yield curve steepened while oil prices fell, reversing earlier gains in a volatile session.
The benchmark 10-year yield, which rose as high fell to its lowest level since mid-October, marking its biggest downward move since July 19.
Brent crude was down $1.19 at $80.8 a barrel. US crude was down $1.64 at $79.22 a barrel.
“The market has really had to reset itself as far as exactly how quickly some of these major central banks are going to be tightening policies,” said Edward Moya, a senior market analyst at Oanda.