The markets continued to be sensitive, with increased volatility being blamed on the stubborn concerns over COVID-19’s Delta variant and the risk that this poses to the reopening of economies.

Volatility was apparent in the Asian equity markets, which saw the Chinese authorities cracking down on companies that they view as having financial stability risk, exacerbating inequality, or challenging the Government’s authority.  Previously, their main target was their own technology sector, however this intensified with an overhaul of China’s private education sector.  Firms operating in this sector are now banned from making profits, raising capital, or going public.  Concerns have increased as to what sector may be next for China’s hand. This  has prompted a hastily organised meeting with the major investment banks to reassure them that the crackdown on the private education sector was not meant to hurt other companies.  This adds another reason to remain cautious on Chinese equities.

The Federal Open Market Committee (FOMC) issued a statement last week, confirming they will continue to assess the economic situation before paring back their quantitative easing programme.  It is sensible for the world’s most influential central bank to be data dependent, however Jerome Powell, the Chair of the Fed, knows that managing expectations is critical.  While there was a unanimous vote to keep rates unchanged and asset purchases at $120 billion a month, there were also heavy hints at reducing these emergency measures which was something already under discussion.

During the subsequent press conference, Jerome Powell confirmed that the Committee had already taken a “deep dive” into how to go about tapering asset purchases, with the US economy having made significant progress towards the dual mandate of the Federal Reserve of achieving maximum employment and price stability.

This month we have the meeting of minds at Jackson Hole, which has typically been the breeding ground for co-ordinated forward guidance from the world’s policymakers.  Expectations are high for more detail on when the emergency monetary measures will eventually be tapered.  The expected signalling from Jackson Hole is likely to be followed by a formal decision from the FOMC in the fourth quarter.

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