Dubai: Global stock markets are expected to stay pressured this week, as investors weigh a lack of urgency surrounding US monetary policy, await cues pertaining to the coronavirus vaccine trials and rising infection rates in several countries worldwide.
Investors last week weighed better-than-expected global corporate earnings and increased merger activity in Europe against political concerns ranging from the US elections to Brexit, which only further compunded doubts about the need of more monetary stimulus in the coming days and months.
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Keeping investors on edge this week will continue to be political uncertainty surrounding the fast-approaching US elections in November and fears over a messy no-deal Brexit, which worsened after the European Union told Britain to scrap a plan to break their divorce treaty.
Stock markets caution-gripped
Although European indexes got a boost earlier after telecoms giant Altice Europe said its founder offered to take the company private and shares went up more than 24 per cent, market-wide cautiousness prevailed and kept a cap on overall gains.
MSCI’s gauge of stocks across the globe shed 0.07 per cent following modest gains in Europe and Asia. Japan’s Nikkei rose after Tokyo dropped its coronavirus alert by one notch from the highest level as COVID-19 cases trend down.
On the COVID-19 front globally, the rising infection cases in key parts of the world and the death toll remained a key reason for wider market volatility, though the rate of fatality from the disease continued to dropped. However, the major global event lined up this week is the US Fed interest rate decision.
US futures were pointing to a cautious open higher, after mixed trading on Friday prompted the S&P 500 and the Nasdaq Composite to record its second straight week of losses. On Sunday, Nasdaq 100 futures were up 0.09 per cent and S&P 500 futures 0.1 per cent firmer.
Market risks to stay mainly political
Most of the risks faced by markets for the rest of the year are political, so around the US election, the UK government’s exit from the EU and US-China tensions, people take a step back to assess these risks, leading to consolidation or a holding pattern, which was vital as markets aren’t cheap at the moment.
US stock markets had last week largely capped a two week slide in technology stocks which had soared during the recovery from March lows. The Nasdaq lost 4.1 per cent and the S&P 500 fell 2.5 per cent over the holiday-shortened week.
On Friday, the Wall Street’s Dow Jones benchmark on Friday rose 0.26 per cent, the S&P 500 lost 0.19 per cent and the Nasdaq dropped 0.98 per cent, reflecting a wider sentiment of negatively-skewed-cautiousness.
Key US Fed meeting coming up
With the US Federal Reserve policy meeting this week coming after the central bank announced a historic change to its policy approach in late August, the chances for further policy changes appeared slim. But analysts don’t think so.
The central bank gathering may offer important details on how the Fed will put its new average inflation targeting framework into practice as clarity remains lacking even after senior Fed officials were queried over its implementation in the last two weeks, multiple analysts note.
When the Fed releases its economic projections next Wednesday many investors expect its US inflation forecast to stay below 2 per cent for the next three years.
Fed to remain pessimistic?
Analysts have been voicing that if the Fed does remain pessimistic on the prospect of a pick-up in inflation over the next few years, the regulator will need to strengthen expectations that it still has monetary policy tools at its disposal.
Analysts also feel that because of the slow economic recovery and the liquidity provided this year by the Fed, there’s a lack of urgency for it to provide more information on the inflation framework.
No clarity on economic rebound
The improving trajectory of economic data may not be enough to force the Fed’s hand and accelerate its timeline for further policy announcements, as they would want to get a better sense of how the economy is going to evolve before committing to these long-lasting type of policy changes, analysts add.
The more likely outcome from the meeting would be for Fed Chairman Jerome Powell to take the opportunity to underline the need for further fiscal stimulus. Next week’s US economic data releases will also include August industrial production numbers, last month retail sales, and September’s consumer sentiment gauge.
The corporate earnings calendar is thin, but US gaints Adobe, Lennar, and Fedex are among the bigger companies reporting next week in the US.
Dubai’s main share index gained 0.2 per cent, hurt by a 0.2 per cent fall in sharia-compliant lender Dubai Islamic Bank. Meanwhile, the Abu Dhabi index slipped 0.2 per cent, as telecoms firm Etisalat dropped 0.4 per cent, while the country’s largest lender First Abu Dhabi Bank was down 0.2 per cent.
“Going forward, for the MENA region, investors might continue to remain cautious, especially after signs of slowdown in private sector and decline in oil prices, both of which have a significant impact on the economies,” said Iyad Abu Hweij, managing director at Allied Investment Partners.
The Dubai Financial Market (DFM) rose 0.5 per cent last week, despite declining through most of last week. Meanwhile, the Abu Dhabi Securities Exchange (ADX) slipped last week, down 0.3 per cent, declining for three out of five sessions last week.
Elsewhere, Saudi Arabia’s benchmark index rose 0.5 per cent, with Dr Sulaiman Al-Habib Medical Services gaining 4.2 per cent, and the Qatari index gained 0.7 per cent, led by a 10 per cent surge in United Development Company.