The World In A Week – The Long and Unwinding Road

Equity markets delivered positive returns last week, with the MSCI All Country World Index delivering +1.1% in sterling terms, while the FTSE All Share Index pretty much delivered the same return.  The best performing region and country was MSCI Emerging Markets and MSCI China, which generated +3.3% and +3.8% respectively.  Returns over the last few weeks have been volatile for these markets, following the recent announcements and policy adjustments put out by China’s State Council and the Communist Party’s Central Committee.  So far, the Chinese equity market has remained under water throughout 2021.

All eyes last week were on Fed Chair Powell’s remarks at Jackson Hole, as he guided on future bond purchases.  Equity markets took his comments about tapering bond purchases later this year within their stride.  Implications for potential future higher yields generally saw bond indices pull back over the week.  Powell reinforced the view that the US economy had made enough “substantial progress” to warrant the shift in policy, though the Central Bank would also be assessing the data from the raging delta variant of the coronavirus. Powell also stressed that the Fed would not be in a hurry to begin raising interest rates after the wind-down. The Chairman continues to do his best tightrope walking act carefully, and so far, successfully, threading the needle of indicating progress towards the Committee’s goals, whilst leaving the optionality to deal with the ongoing pandemic.

Powell also continues to argue that the inflationary impact from the crisis is largely transitory. However, we continue to see problems within the global supply chains, affecting everything from McDonald’s milkshakes to golf balls.  One of the world’s busiest ports in China had to shut down a container terminal because a worker was diagnosed with COVID-19, and it is reported that it will take a week for the port to get back to normal.  It appears that the Fed’s task of guiding the markets is going to be incredibly tough and very much data-dependent, but for now markets are prepared to play along.

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