by Adam Button
The combination of FOMC members’ insistence on a September taper with surging COVID cases/deaths in the US is too much to take for indices. Add to it a round of weak Chinese data and it underscores risks to the outlook ahead.
Another disappointing US consumer reading—this time a larger than expected -1.1% drop in retail sales has strengthened the camps of the Fed doves.
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Those are big disappointments and shortly before the data was released, the PBOC announced a 600B yuan one-year lending operation in a sign that more help could be coming.
The entire Asia-Pacific region is struggling with Delta so there’s no near-term turnaround on the horizon. There was a slice of good news in Japanese Q2 GDP as the consumer held up better than anticipated. People have figured out how to live (and spend) with COVID restrictions, but the grand 2021 reopening that everyone was hoping for isn’t coming to fruition and uncertainty about what 2022 will look like is growing.
Powell‘s appearance shed no fresh light on the policy debate, but Wednesday’s FOMC minutes should add plenty of of detail on the thinking/discussion inside the various members’ leanings towards a Q4 taper.
Yields fell and the yen rallied as the likelihood of a quick series of Fed rate hikes next year fades. Advanced/decline readings of major US indices are firmly swayed into the red.