Week ending 20th August 2021.

As you can see from the accompanying table, it hasn’t been a pleasant week for global equity markets as the resurgence in coronavirus cases has hurt share prices.

However, as we have previously stated, while the spread of the Delta variant will impact the global economic recovery, it is unlikely to put a stop to it as the bar for reinstating full-scale lockdowns is very high.

Data wise, Wednesday’s (18 August 2021) release of the minutes from the Fed’s last monetary policy meeting (held at the end of July), was the week’s big event.  Unsurprisingly, given the comments from a number of Fed policymakers during July, the minutes suggested that if the US economy continues to progress as it is currently, then policymakers would consider starting to taper their monetary stimulus in the coming months.

We find this astonishing: US economic growth – even before the recent surge in coronavirus infections – was likely to slow down simply because the US government’s fiscal stimulus is coming to an end; and given inflation is, as we expected, starting to show clear signs of slowing, any early and aggressive tapering would, in our opinion, be a policy error.

Thankfully, however, the Fed minutes are over three weeks old – which is an eternity in the current environment – and today (Friday 20 August 2021), Robert Kaplan, the President of the Dallas Fed, suggested that his views of the removal of monetary stimulus need to change. This is significant because Robert Kaplan was among those policymakers pushing for the US central bank to remove monetary stimulus quickly and aggressively – and this U-turn cements our view that an increase in US interest rates is a distant prospect, which is positive for equity markets, especially given the current robust company earnings reporting season.

Looking ahead to this coming week, all the attention will be on the Fed Chair, Jay Powell’s, Jackson Hole speech for further clues on monetary policy. Unfortunately, that doesn’t begin until 3pm (UK time) on Friday 27 August 2021 – meaning markets will be on tenterhooks (and potentially volatile) for the week.

In the meantime, we have PMI data for the US, UK and Eurozone; US home sales; US durable goods; and US PCE (the Fed’s preferred inflation measure).

Investment Management Team

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