US sharemarkets finished last week at fresh record highs supported by solid earnings reports, and despite the US inflation rate hitting a 30-year high and a sharp deceleration in growth in the third quarter.
Locally, the ASX200 fell 1.2 per cent last week, the bulk of the falls coming on Friday on month-end rebalancing flows and in response to higher bond yields.
Here are the top five things to watch in markets this week.
1. US September-quarter earnings season
This week will see reports from Pfizer (PFE), Uber (UBER), Moderna (MRNA), and energy giants ConocoPhillips (COP) and Marathon Petroleum (MPC).
Pfizer and its partner BioNTech were the first to receive COVID-19 vaccine authorisation and are expected to ship 2.1 billion doses of its vaccine in 2021 and generate $33.5 billion in sales.
However, investors are questioning the outlook for vaccine sales in 2022, given the uncertainty around booster shot policies in developed nations, demand from middle- and lower-income countries, and virus mutations.
Analysts expect Pfizer to report revenue of $22.58 billion in the third quarter and earnings per share (EPS) of $1.08.
2. The Federal Open Market Committee (FOMC) meeting
As part of its support for the economy, the Federal Reserve is buying $120 billion of bonds per month under its quantitative easing program.
At its meeting this week, the Federal Reserve is expected to start tapering its bond purchases by $15 billion a month, ending some eight months later in mid-2022.
Interest rate hikes are anticipated to commence shortly afterward.
3. Reserve Bank of Australia interest rate meeting
Last week’s higher-than-expected inflation reading in Australia spooked the bond market, and there are now 100 basis points of interest rate hikes priced in by the end of 2022.
In response, the RBA, at its monthly board meeting on Tuesday afternoon, will keep the cash rate at 0.1 per cent and acknowledge that it will begin raising interest rates earlier than expected (2023).
The RBA will likely end its ‘yield curve control’ (YCC) policy that aims to keep the April 2024 government bond yield at 0.1 per cent (now trading at 0.78 per cent).
4. OPEC+ meeting
Crude oil closed +11.38 per cent in October as an easing of COVID-19 restrictions fuelled demand against a backdrop of tight global supply and low inventories, sending petrol prices higher at the bowser.
On Thursday of this week, the Organisation of Petroleum Exporting Countries and other foreign producers (OPEC+) will meet to discuss increasing output.
Despite a chorus of calls for OPEC+ to increase production to ease higher prices, most analysts expect OPEC+ will rubber-stamp a planned output increase of 400,000 barrels per day in December.
5. Will the AUD-USD push to new cycle highs?
The AUD-USD rallied 4 per cent in October, closing above 75 cents for the first time since June.
Can the AUD-USD build on recent gains to put more spending money in the pocket of Australians from New South Wales, Victoria and the ACT who are now able to travel abroad for the first time in 18 months?
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