Recently, financial markets have had to digest some mixed signals from the US economy (August jobs report and retail sales, latest CPI). The Fed announced a potential tapering, but the overall approach will be gradual and the ‘not enough growth’ narrative will remain dominant.
We see two mounting risks in the background. The first relates to China: the summer spread of the delta variant, the renewed regulatory wave, and the Evergrande saga. The deceleration in the Chinese cycle will trigger fiscal and monetary accommodation, as was witnessed in the PBoC’s latest move to avoid a liquidity crunch.
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