{"id":4264,"date":"2021-09-03T16:39:40","date_gmt":"2021-09-03T08:39:40","guid":{"rendered":"https:\/\/www.syfe.com\/magazine\/?p=4264"},"modified":"2024-04-02T14:00:13","modified_gmt":"2024-04-02T06:00:13","slug":"august-market-review-delta-the-fed-china-equities","status":"publish","type":"post","link":"https:\/\/www.syfe.com\/magazine\/august-market-review-delta-the-fed-china-equities\/","title":{"rendered":"August Market Review: Delta, the Fed & China Equities"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

The Delta variant, China equities, the Fed. Investors certainly had no lack of headlines to contend with in August. As we head into the final four months of the year, here\u2019s a review of markets last month and what September might bring.<\/p>\n\n\n\n

Fed tapering<\/strong><\/h2>\n\n\n\n

For weeks, investors had been anticipating the annual US Federal Reserve symposium at Jackson Hole, anxiously waiting to hear the Fed\u2019s plans on tapering its easy monetary policy and when it will start raising interest rates.<\/p>\n\n\n\n

The summit last Friday (27 August) was generally positive. Fed Chairman Jerome Powell indicated that the Fed would start tapering its monthly bond purchases before the end of the year, as long as economic progress continues. However, interest rate hikes are still well off on the horizon. <\/p>\n\n\n\n

His dovish comments sent stocks higher last Friday while government bond yields fell as investors pulled back their expectations for when the Fed may begin raising interest rates. His remarks also avoided setting off a repeat of the so-called 2012 \u201ctaper tantrum\u201d when the Fed unexpectedly announced they would pare back asset purchases.<\/p>\n\n\n\n

Why the need for tapering<\/strong><\/h2>\n\n\n\n

The Fed has cut interest rates to near zero and committed to buy at least US$120 billion of Treasury bonds each month in order to support the US economy amid the pandemic. With rate cuts and the injection of liquidity through these asset purchases, the US economy has rebounded remarkably quickly, and the inflation rate has also crept up. Under such circumstances, it\u2019s clear that the US economy has reached a point where it no longer requires that much policy support. <\/p>\n\n\n\n

The Fed has another scheduled meeting planned for 21 and 22 September. This will be closely watched for any indication of when the tapering would occur. While markets seem to agree that pandemic-era stimulus cannot go on forever, the pace of the tapering is another important signal that investors will be looking out for. <\/p>\n\n\n\n

Delta variant<\/strong><\/h2>\n\n\n\n

The delta variant of the coronavirus has now spread to more than 130 countries globally, according to the World Health Organisation. Highly transmissible, it has caused a renewed wave of infections around the world. This could affect businesses and consumer sentiment and weigh on the global economic recovery. <\/p>\n\n\n\n

During his speech on Friday, Fed Chairman Jerome Powell cited the delta strain as a \u201cnear-term risk\u201d for the US economy. Some signs of that may already be underway. The US Conference Board Consumer Confidence Index fell in August to its lowest level<\/a> since February. If the virus spread worsens, consumer confidence will likely be dampened in the coming months.<\/p>\n\n\n\n

Silver linings<\/strong><\/h2>\n\n\n\n

Economists at Goldman Sachs have cut their third-quarter US growth forecast to 5.5%<\/a> from 9%, given the likely impact of the delta variant on the US\u2019 economic recovery. That said, 5.5% is still powerful growth. The US recovery may be moving at a slower pace than before, but it is still underway. <\/p>\n\n\n\n

Even if economic data declines in September due to the delta impact, that may not necessarily be a negative for stock markets. That\u2019s because weaker economic data would mean that the Fed is more likely to stay dovish and continue with its stimulus efforts, according to Fundstrat<\/a>. If the tapering is delayed to later in the year, that would \u201cbenefit financial markets\u201d, the research house noted.<\/p>\n\n\n\n

China\u2019s regulatory crackdown <\/strong><\/h2>\n\n\n\n

China\u2019s clampdown on industries ranging from technology to education has roiled financial markets and triggered a wave of sell-offs. This crackdown is part of the Chinese government\u2019s plan to promote \u201ccommon prosperity\u201d by narrowing inequality and keeping capital expansion in check.<\/p>\n\n\n\n

As we highlighted in our webinar on China\u2019s market outlook<\/a>, the regulatory reforms impact Chinese companies in several ways.<\/p>\n\n\n\n

\n