Markets have been relatively muted for the greater part of August. Bar the geopolitical tensions between the US and North Korea, the terrorist attacks in Barcelona, Spain and Turku, Finland as well as the situation in Venezuela being as edgy as ever, markets remained particularly robust.
Earnings season momentum was maintained from previous quarters and economic data did not surprise. True, there have been notable bouts of profit taking during August, but that is justified following the rally in equities and credit in the first 7 months of the year.
Throughout recent weeks, there has been great hype over last week’s events, notably the 2017 Economic Policy Symposium in Jackson Hole, an annual event held towards the end of August whereby the world’s leading central bankers join their emerging market counterparts as well as academics and leading bank chief executives.
Those market participants who expected some form of clear indication as to what the next move by both the European Central Bank and US Federal Reserve will be, more importantly in terms of timing, were left more than disappointed, and felt like a status quo scenario unfolded, leaving investors frustrated and ignored.
ECB’s Draghi failed to provide any form of updates on euro area growth in his attempt of trying to control the euro from strengthening any further. He chose to focus more on what was needed in the economy to propel trade openness and raise potential output and productivity, but that is not quite what the market wanted to hear.
Neither was there any direct specific mention about Brexit, which raised more than a couple of eyebrows. No mention either whatsoever about the ECB’s current monetary policy and how and when the unwinding of the current QE program will continue to unfold.
Even, Fed Chair Janet Yellen’s Jackson Hole speech did little to excite investors and cause any great shakes, in either direction, to the markets, particularly because close to none of the statements were forward looking. From reference to the previous financial crisis, to the flurry of banking regulation which ensued, there was no mention to the monetary policy adopted since the financial crisis broke out in the summer of 2017, and hence no mention either on the Fed’s current monetary policy stance.
What concerns most is that it was disappointing that Chair Yellen did not address how the monetary policy stance might be affecting asset valuation risks. Why she has opted to go down this route is yet unclear but it could well be that the Fed might be possibly trying to place underlying markets risks under the carpet for the time being and not grabbing the bull by its horns and tackling the issues that really concern the market head-on.
Pretty much a stalemate, which leaves investors across both sides of the Atlantic asking more questions than they were before the meeting.
Disclaimer: This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website