International Communique No. 308 – 28th September 2021


Equity markets have gradually regained ground, holding on to gains as central banks decisions came and went. Norway’s central bank has been the first to take action, raising its benchmark policy rate to 0.25%. Canada and New Zealand are soon expected to follow suit.

Meanwhile, the Fed dashed expectations for hard news on tapering. Chair Powell continues to prepare the markets, having hinted that moderation in asset purchases could be announced at the next meeting in November. The so-called Fed ‘dot plot’, which charts the views of individual FOMC members on interest rate rises, shows that 9 out of 18 governors now think that the rate lift-off will take place in 2022, followed by three increases in 2023 and 2024. That suggests a benchmark rate of 1.75% in three years’ time. This different prospect is also driven by latest forecasts for inflation, which they see peaking at 4.2% this year, i.e. more than twice the target. The Fed also cut its annual GDP growth forecast to 5.9% (from 7% in June).

Yields have risen since the policy statement. Expect more volatility in the bond market during the final quarter.

China continues to constrain markets with each government crackdown. The latest is taking on cryptocurrencies. Beijing is tightening its grip on cryptocurrency trading platforms in a bid to eliminate the illegal business that arises from cryptocurrency exchanges. Bitcoin mining is now banned nationwide, as are the cryptocurrency-related services offered by banks and payment providers.

Evergrande has already rattled investors, and more of its payment deadlines are looming. Since the scandal broke, the Chinese government has injected nearly 461 billion yuan (61 billion euros) to reassure the market. ECB President Christine Lagarde has stated that European exposure is limited.

Global growth is losing momentum, as are equity market indices, which have not risen for the past month. Bear in mind that over a 10-year period, the S&P 500 has put on 388%, or an annualised 17%. Expectations are consequently high, making it is increasingly difficult to surprise on the upside. Stock indices need to find their second wind in the final quarter, potentially blowing across from nine-month corporate earnings.

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