Dubai: While the month of October has historically been a volatile period for stocks, analysts evaluate how the last quarter of the year is still expected to be positive for markets worldwide.
Investors globally are faced with a possible policy-related shift by central banks, debt-related uncertainty at Chinese real estate giant Evergrande, rising threat of inflation and the ongoing repercussions of the pandemic on key economies worldwide.
However, after a rocky period in October analysts still expect stock markets to stay buoyant. Key global indices eked out a small gain for the third quarter, but was down significantly for the month of September, as markets dropped on Thursday – the last day of the month.
Stocks start October sour
Global stocks also slid on Friday, the first day of trading for October, after the S&P 500 suffered its biggest monthly fall since March 2020, but are expected to rebound strongly the coming week.
In Europe, the continent-wide STOXX 600 was lower, while London’s FTSE 100 had fallen as well. Asian equities also suffered, with Tokyo’s Nikkei 225 dropping significantly. Chinese markets were closed for the Golden Week holiday.
However, the last quarter of 2021 will likely record a higher-than-average return, analysts opine, but investors will need to hang on tight during the typically tumultuous ride in October, which saw 36 per cent higher volatility when compared with the average for the other 11 months.
US employment data on Friday
The focus first shifts towards the US this week, with employment data starting on Wednesday and culminating with Friday’s jobs report release.
Investors see the US employment report potentially detrimental for the Federal Reserve’s decision on when to taper its $120 billion-a-month bond buying program. Economists expect about 475,000 jobs added in September after lesser-than-expected payrolls were added in August.
Central banks come back into focus
The US central bank’s decision is crucial for central banks worldwide as many seek to follow suit, so a key event in the fourth quarter could be the beginning of the unwind of the Fed’s easy policies.
The US central bank last week signaled it is nearly ready to take that first step away from the policies used during the pandemic to maintain financial market liquidity and help the economy.
The Fed is widely expected to announce in November that it will start to slow its bond purchases, and Fed Chairman Jerome Powell said he expects it to finish by the middle of next year.
RBA rate decision on Tuesday
Other central banks around the world are also making the same noises or actually moving to raise interest rates, with the Reserve Bank of Australia (RBA) rate decision on Tuesday. Bond market experts now expect a trend toward higher interest rates.
Markets in Mainland China will be closed through October 7 for Golden Week. The MSCI China Index is down nearly 18 per cent for the year as the government continues its crackdown across industries.
Japan’s services manufacturing data (PMI) will be released on Monday, while the US, India, and Europe follow on Tuesday, and China’s Caixin services PMI will be released on Thursday. The readings reflect managers’ views on growth and their economic outlook from a wide variety of service industries.
OPEC kick start proceedings on Monday
Market strategists evaluate how the week ahead also brings a continued focus on energy markets, with OPEC kick starting proceedings on Monday. OPEC sees oil demand continuing to grow to the middle of next decade, even as world leaders prepare for another attempt to avert catastrophic climate change.
Global oil demand suffered an unprecedented slump last year as travel and economic activity were curbed by efforts to battle the coronavirus.
OPEC forecasts that consumption will rebound above 100 million barrels a day in 2023, and continue to advance to 107.9 million a day in 2035. The projections are little changed from last year’s report.