1st September 2021
The only way is up?
Federal Reserve Chairman Jerome Powell buoyed markets on Friday, as he expressed a future shift in US economic policy during his speech at the Jackson Hole Economic Symposium.
At one time, Powell had declared that the US would continue its asset-purchase programme until it believed employment and price stability goals had been reached. On Friday, he commented: “My view is that the ‘substantial further progress’ test has been met for inflation. There has also been clear progress toward maximum employment.”
While recognising that challenges are at large – including the continuing spread of the COVID-19 Delta variant in many US states – Powell said the Fed may start to gradually dial down the pace of asset purchases this year.
David Page, Head of Macro Research at AXA Investment Managers, remarked:
“We argue that a key shift in language between the minutes of July’s FOMC meeting and today’s speech suggests that the Fed is poised between announcing a tapering of its assets in December (our outlook to date) and a little earlier in November. We consider data releases over the coming months as critical in that determination, but for now continue to suggest that an announcement in December is most likely.”
On the other hand, tapering asset purchases won’t automatically signal a change to interest rates, as the Federal Reserve has stated that a “different and substantially more stringent test” must be passed ahead of any increase in that regard, Powell said.
US market strides…
Powell’s words had a marked and instant effect on markets, with both the Nasdaq and S&P 500 subsequently forging further into record territory.
This rounded off a positive week for US equities, which had been rising during the course of the week. The S&P 500 had dropped the previous week, but atoned for these losses early in the week to conclude the week at a new record high.
…and trepidation elsewhere
Given that the US economy has so much global clout, it’s possibly not too much of a shock that Powell’s speech likewise impacted non-US markets. The FTSE 100 closed the week up slightly – in part down to a boost in values on Friday afternoon.
The STOXX Europe 600 ended the week flat. In spite of the fact it closed just an hour after the scheduled start time of Powell’s speech, it nevertheless finished the week with growth on Friday, yet this wasn’t sufficient to balance out the falls experienced earlier in the week. Market research company GfK reported on Thursday that European shares were also affected by waning German consumer confidence. The survey of around 2,000 Germans discovered that the public had become increasingly anxious due to rising prices and increasing COVID-19 cases.
The crackdown continues
Numerous Asian markets continued to be taken aback by China’s regulatory crackdown. Alongside its pressure on tech companies and monopolistic behaviours, Chinese President Xi Jinping has drafted out measures targeting income regulation and wealth redistribution – possibly thwarting prospects for luxury brands with strong sales in China.
While this might have disturbed markets for the short term, Martin Hennecke, Asia Investment Director at St. James’s Place, reflected on the recent listing of China Telecom – the biggest flotation in the A-share market in a decade – and the robust market for initial public offerings (IPOs) in Hong Kong, to propose that it’s doubtful that the significance of China’s private sector is going to vanish any day soon.
“In fact, it currently contributes approximately 60% of China’s GDP, is responsible for 70% of innovation, 80% of urban employment and provides 90% of new jobs.”
He went on to say that, while it’s understandable that the surge of recent regulatory interventions might lead to investors posing questions and having concerns, this should nevertheless be a timely reminder of how crucial it is to diversify across both sectors and global markets.