SINGAPORE - Today, the spectre of stagflation haunts many economies as they try to break free of Covid-19 and regain some semblance of normality.
Inflation is already making a comeback after a two year break. Unemployment - or rather under-employment - remains an issue many governments are grappling with.
This is the scenario against which stock markets are struggling to make headway as we enter the final quarter of 2021.
That said, markets ended the week on a stronger note as the US Senate took steps to pass a short term US$480 billion (S$650 billion) increase in Treasury borrowings to avert a debt default later this month. Sentiment was also helped by the better than expected US jobless claims data, with initial claims at 326,000 compared to consensus estimate of 348,000.
That said, September added 194,000 jobs versus a forecasted 500,000, suggesting that hirings have slowed significantly in the world's largest economy. Still, the unemployment rate fell to 4.8 per cent versus an expected 5.1 per cent.
However under-employment has become persistent, especially amongst workers in the over-55 years category. US data suggest many older workers are also dropping out of the regular workforce, thus artificially lowering the official unemployment numbers.
Still, data released last week was good enough to cheer the Dow Jones, which ended the week's session 1.22 per cent higher at 34,748.25 points.
The broader S&P 500, however, lost 1.51 per cent for the week to 4,3991.34 while the tech-heavy Nasdaq slid 3.55 per cent to 14,579.54 points.
The Singapore Straits Times Index (STI) gained an impressive 61.7 points or 2 per cent to end at 3,112.81 points supported by the three local banks and blue chips like Singapore Telecommunications.
The STI edged up 0.9 per cent in October, bringing its year-to-date (YTD) total return to 12.6 per cent. The Singapore benchmark index's performance has been more aligned with the FTSE All World Index, which has gained 15.9 per cent YTD. The FTSE Asia Pacific Index has gained 3 per cent.
Since the US Federal Open Market Committee (FOMC) confirmed plans to taper its bond buying during the final quarter of this year, the US Treasury yield curve has been steepening, suggesting higher interest rates on the horizon. The 10-year Fed rate is now at its highest in several months, at 1.6 per cent.
This rate hike scenario has seen global banks gain 5 per cent and global real estate investment trusts (Reits) decline 2 per cent.
In Singapore, DBS has gained 3.9 per cent, UOB 3.7 per cent and OCBC 2 per cent. Meanwhile the iEdge S-REIT Index has slipped 1.7 per cent, in line with global peers.
Going forward, the market is likely to remain volatile, dancing to news and data flows.
Energy and food stocks will continue to be in the limelight as oil prices surge past seven-year highs and global supply chains continue to tighten amid the reflation.
But Mr Vasu Menon, executive director for investment strategy at OCBC Wealth Management, reckons that after a 4 per cent pullback in global equities in September, investors can hope for better times in October and the rest of this year.
"Fiscal and monetary policy stimulus may peak this year but they remain supportive of growth in 2022 along with the growing deployment of vaccines, and this should augur well for equity markets," he said.
"The abundance of liquidity on the sidelines as seen from the massive US$4.5 trillion sitting in US money market funds also points to the possibility that stock markets are likely to continue rising over the medium term. Pullbacks could offer buying opportunities."
The week ahead will see a slew of economic and earnings data and other market moving events.
The FOMC Minutes for the Sept 22 meeting will be released this coming week and will be scrutinised for more clues about what the Fed might do in the coming months. Back then, Fed chairman Jerome Powell did note the predicament of a "strange world where there's lots of unemployed people and a high unemployment rate, but a labour shortage".
On the economic data front, the much weaker-than-expected US jobs data for September released could actually prove to be a boon for the markets. The monthly jobs report was the second miss in a row and the smallest advance for this year. This signals that the US jobs market is still weak and on the mend, and may prevent the Fed from tapering too aggressively - something investors may welcome.
The US inflation figures for September will be closely tracked, given recent concerns about inflationary pressures and its impact on central banks' monetary policy.
In China, a slew of data for September is due this week including money supply, new loans and trade figures - all of which will offer further clues about the outlook for the economy at a time when it is facing several headwinds from regulatory curbs and the ongoing Evergrande saga.
Elsewhere, the third quarter earnings season begins this week, and markets are expecting a strong 28 per cent earnings growth for the S&P 500 index. If the third quarter results come in strong and exceed expectations, this could set the stage for a recovery in equity markets in the coming weeks.
Aside from economic and earnings data, markets will also be keen to see what the International Monetary Fund is projecting for the world economic outlook when it releases its new forecasts for the global economy on Tuesday.