Dubai: Investors will further bet this week on an imminent post-lockdown revival, as market benchmarks inch themselves back to record pre-pandemic levels.
“While there are still significant uncertainties over the COVID-19 impact on corporate earnings, investors are encouraged by the reopening of economies that is likely to lead to a rebound in profitability later this year,” said Iyad Abu Hweij, managing director at Allied Investment Partners PJSC.
The S&P 500, the Wall Street index broadly considered to represent global markets, was very close to being back in the green for the year, adding 4.9 per cent for the week last week.
US job data boost
“Investor’s continued bet on economic revival received a booster shot late in the week when the US non-farm payrolls confounded all expectations,” wrote Aditya Pugalia, Director of Financial Markets Research at Emirates NBD.
“The US non-farm payrolls data released at the end of last week sowed hopes of a V-shaped recovery as it showed 2.5 million jobs were added compared to consensus estimates of a decline of 7.5 million.”
The unemployment rate in the world’s largest economy improved to 13.3 per cent, with the growth primarily driven by sectors that were among the hardest hit like restaurants, retail and healthcare.
Strategists expect the market’s reopening trade to continue driving investors into cyclicals, like financials and industrials, and other stocks that will be do well in an economic recovery.
The MSCI All Country World index added 5.8 per cent last week on the back of strength across major sub-indices. Volatility eased across markets but remained at elevated levels.
The VIX index, a measure of market volatility, dropped about 11 per cent in the prior week, but still remained double the level seen at the start of the year.
US Fed meeting in focus
The US Federal Reserve’s two-day meeting is the big event for markets in the coming week, and traders are hoping for more details on stimulus and a possible new program.
“While little change is expected on the policy front, comments from the Fed Chairman will be keenly noted especially in light of the recent economic data and a sharp rebound in financial markets,” Pugalia added.
Bond market joins in
The bond market joined in the reopening trade for the first time in the past week, and rates jumped as investors sold safety plays and moved into riskier assets.
After days and weeks of listless trading, the US bond-market was seen breaking out of its stupor, after long-term government yields rose on Friday.
The generally peaceful US bond market was hit by easing demand for haven assets and a sudden investor appetite for riskier assets amid growing signs of an economic recovery, with businesses reopening after the coronavirus pandemic recedes in much of the world.