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The European Union PMIs, which have held up well, could give a sense of what toll a resurgent COVID-19 is taking. Image Credit: AP

Dubai: In the last weeks of November, investors are expected to be upbeat as markets worldwide show signs of picking up ahead of the historical year-end rally.

However, analysts evaluate how this year’s rally could depend on whether the US Federal Reserve Chairman Jerome Powell continues in his role after his term expires in February.

Next Fed chair

The next chair of the US Federal Reserve could be decided by this week, some market analysts reveal, while expecting market volatility around the time of the appointment early next year.

US President Joe Biden, indicated this week that he is close to making a decision on whether to reappoint Powell amid speculations that he may instead choose Lael Brainard, a current governor.

If this were to happen, analysts see markets repricing the timing of rate hikes because Brainard is considered slightly more dovish and said to favour waiting longer to wind down the bond-buying stimulus program.

More US data

Meanwhile, the world’s closely tracked US index, the S&P 500 ended slightly higher in the past week, buoyed by positive economic reports and corporate earnings in the US, the world’s largest economy.

Investors were particularly impressed by the jump in October’s retail sales, which came in much higher than expected, indicating that consumers are spending despite rising prices, risking even higher inflation.

There are a number of economic reports in the week ahead in the US. The most important release is Wednesday’s personal spending and income, which includes the inflation measure most watched by the US Federal Reserve.

Holiday closure

Shoppers worldwide are gearing up for Black Friday, while investors will scan inflation data and Fed minutes to get hints of the impact of price pressures on interest rates.

The markets will also close early after Thanksgiving, and companies will be watching sales for an early preview of the holiday shopping season, which runs from Black Friday through the end of December, and typically accounts for just under a fifth of US total annual retail sales.

The second-half of the week is likely to be quieter thanks to the US Thanksgiving holiday. Even as the corporate earnings season winds down, a few companies to watch this week include Zoom, HP and Gap in the US, and Compass and AO World in the UK.

Economic health

The Flash PMI manufacturing numbers for November, an important forward-looking economic indicator, comes from a wide range of major economies in the coming days – the US, Australia, the UK and the European Union.

Market focus is on the impact of price pressure and supply bottlenecks on business activity, and whether these decrease. The European Union PMIs, which have held up well, could give a sense of what toll a resurgent COVID-19 is taking.

Germany warned that the COVID-19 situation in the economy is dramatic, the Netherlands is partially locked in and pressure is mounting on Austria to do more. But vaccine rollout alleviates some of these concerns.

COVID-19 concerns

Europe has become the epicentre of the pandemic again in recent weeks. Markets, which had been relatively calm now have to weigh the impact additional measures may have.

As a result, Euro zone bond yields slumped on Friday and Germany’s entire yield curve fell into negative territory for the first time since August.

A market gauge of long-term euro zone inflation expectations fell below 1.90 per cent for the first time in two weeks at 1.8816 per cent.

Inflation pressures

Going forward, rising inflationary pressure will continue to haunt global markets as fears of rate hikes will pump out liquidity from emerging markets.

Movement of the US dollar, Brent crude and investment trend of foreign institutional investors in key economies worldwide would also be in focus.

Overall market is in consolidation mode as valuations are rich despite good quarterly performance. Also, global cues are keeping markets volatile.