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With the US Federal Reserve and the Bank of England meeting this week, investors brace for what could be a move away from the easing policies. Image Credit: AFP

Dubai: With the US Federal Reserve and the Bank of England meeting this week, investors brace for what could be a move away from the easing policies central banks had put in place to fight the pandemic.

The US central bank is widely expected to announce that it will begin to unwind its $120 billion in monthly bond purchases and end the program entirely by the middle of next year.

So the US Fed’s two-day meeting Tuesday and Wednesday is the big event for markets in the week ahead. Also, in the world’s largest economy, the October employment report on Friday could show some improvement in hiring, analysts expect.

Fed decision this week

The Fed’s expected decision this week is part of a global move to gradually move away from an accommodative monetary policy. (Accommodative monetary policy is when central banks expand the money supply to boost the economy.)

After central bank rate hikes by South Korea, Norway and others, the Bank of England also meets on Thursday, and it is expected to raise interest rates.

In the US and most other countries worldwide, there are dozens of earnings expected, including pharmaceuticals heavyweights like Pfizer and Moderna, as well as a host of other companies.

Will markets rise or fall?

So in a nutshell, according to the market analysts, during the coming week, the Fed interest rate decision, macroeconomic data announcements, and quarterly earnings will be the major sentiment drivers for the equity market.

However, global stock markets are widely expected to drive right past that as inflation worries rise. Inflation has been running at a 30-year high in the US, jumping 3.6 per cent in September on a year-over-year basis, the same as in August.

Rising inflation is triggering anxiety among investors around the world as a surge in demand following the easing of COVID-19 lockdowns has been confronted by supply bottlenecks and rising prices of energy and raw materials.

Inflation worries plague

The sharpest consumer-price increases in years in many countries have evoked different responses from central banks. More than a dozen have raised interest rates but two that haven’t are those that of the Federal Reserve and the European Central Bank.

US stocks were higher on the week, with the S&P 500 up roughly 6.7 per cent for the month of October. Both the Dow and S&P 500 notched new highs in the past week. The widely watched 10-year Treasury yield was at 1.5 per cent on Friday.

Equity markets elsewhere dipped on Friday, while the US dollar gained as rising consumer prices bolstered expectations of interest rate hikes even with data showing solid growth in US consumer spending.

World stocks dip

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6 per cent in September, the Commerce Department said on Friday, signifying strong consumer confidence as COVID-19 infections fall.

Investor sentiments soured following quarterly earnings from technology giants Amazon Inc and Apple Inc on Thursday that both missed Wall Street predictions owing to increased labor costs and operational disruptions that were set to hit their revenues.

The MSCI world equities index, which tracks shares in 50 countries, dipped 0.3 per cent towards the end of last week. European stocks closed 0.07 per cent higher after rebounding from losses early in the day’s session on Friday.

Oil prices up, gold costs drop

US crude prices settled higher, turning positive after an early decline, supported by expectations that the Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+, would maintain production cuts.

Brent crude rose 6 cents to settle at $84.38, while US West Texas Intermediate crude rose 76 cents, or 0.9 per cent, to $83.57.

Gold prices fell to their lowest level in more than a week on Friday, weighed down by a stronger dollar and rising US inflation. Spot gold last dropped 0.9 per cent to $1,782.39 an ounce. US gold futures fell 1.30 per cent to $1,783.00 an ounce.