Stock markets mostly fell on November 2 as traders held back ahead of this week’s key central bank meetings that are expected to see officials begin withdrawing their vast pandemic-era financial support, while keeping a wary eye on inflation and supply chain snarls.
Another record close on Wall Street provided a fruitful lead thanks to a strong earnings season that has seen the vast majority of companies beat expectations despite concerns about the impact of surging input costs and spiking Covid infections in the third quarter.
However, a promising start in early trade gave way to selling as traders remain on edge about the outlook with Hong Kong and Shanghai weighed by the latest outbreak in China that has led authorities to reimpose strict containment measures.
Similar moves in the country earlier this year led to a sharp drop in economic activity and dragged growth down.
Hong Kong, Shanghai, Sydney, Tokyo, Wellington, Mumbai and Jakarta all fell while Taipei was marginally down. Singapore, Seoul, Manila and Bangkok edged up.
London and Paris opened lower but Frankfurt moved up.
Still, analysts for now remain buoyant about the outlook for markets.
“We are now in the midst of an early ‘January effect’ and I expect that this will continue through Thanksgiving,” said markets strategist Louis Navellier.
“However, December is also a seasonally strong month and January is typically stronger, so we have three months of seasonal strength to look forward to.
“In the meantime, we are still in the midst of wave after wave of better than expected third-quarter earnings announcements, so enjoy the ride.”
Attention now turns to the central banks’ policy meetings this week.
With several countries already starting to lift interest rates, traders are now preparing for the end of the cheap cash era, which has helped propel markets to record or multi-year highs.
On November 2 the Reserve Bank of Australia said it would no longer artificially maintain low yields on three-year bonds, making it the latest to step back from its easy money strategy, while the Bank of England is tipped to hike borrowing costs on November 4.
But the US Federal Reserve’s (Fed) November 3 gathering is the main focus of attention. US authorities are forecast to start tapering their bond-buying programme this month but observers said the board’s timeline on raising borrowing costs will be top of the agenda.
The main focus of the meeting “will be much more on the Fed’s inflation stance than tapering”, Steve Englander, of Standard Chartered Bank, said.
“The elephant in the room is headline and underlying inflation, which are higher than the [Fed policy board] was anticipating.”
And Jeffrey Halley of Oanda said tapering monetary policies was needed now.
“I have no argument with leaving policy rates around the world at record lows, despite the recovery noise in the data globally, the recovery remains fragile,” he said in a note.
“What needs to end is the quantitative easing … which while necessary as a monetary tactical strike during the height of the pandemic, has quickly reached its use-by date.”
The release of US employment figures on November 5 will also be followed for a fresh idea about the impact of inflation and Covid infections on the jobs market.