Economic indicators in the US continue to show conflicting signals. PMIs were slightly lower than market expectations, but the figures are still well in the expansion zone. However, consumer sentiment fared worse, hitting a near term low; inflation remained at the 10 year high, and employment data also showed dissatisfying figures, with non-farm payrolls seeing the lowest figure in 6 months. The resurgence in the pandemic have impacted business confidence and spilled over to the jobs market, suggesting that the economy might have slowed down.

Yet, the weaker than expected economy might not be entirely a bad thing for the financial markets. At the Jackson Hole Symposium, Fed Chairman Jerome Powell cited weaker employment conditions as the primary reason for holding off monetary tightening. The Fed was also surprisingly dovish over tapering, only suggesting the possibility before the end of the year, further supporting the market. However, we would highlight the risks, as the weakening economy, and the slow progress towards herd immunity also poses extra downside risk. Looking forward, while we stay positive on the US market, caution is advised, and we continue to prefer growth sectors in the portfolio for mid to long-term investments.

 US

Retail sales rose unexpectedly MoM, reflecting a healthy consumption market. However, with the US debt ceiling crisis still in play, market sentiment weakened and US stocks softened, with the three major equity indices retreating between 0.37% and 0.44% over the past five days ending Thursday. August retail sales in the US rose 0.7% MoM, versus expectations of a 0.7% contraction, while CPI rose 0.3% MoM, the lowest increase in seven months and also fell below expectations, easing inflationary pressures and calmed market fears of persistently high inflation. 

The US debt ceiling issue is on the horizon, but Senate Republicans are adamantly opposed to raising the ceiling; Treasury Secretary Janet Yellen has reached out to Senate Minority Leader Mitch McConnell for support, but has been turned down. J.P. Morgan said a technical default in the US could have a negative impact on the market. It is also reported that US House Democrats are drafting an increase in corporate taxes from 21% to 26.5%, which would be slightly lower than the 28% proposed by Biden earlier this year. Next week, the US Federal Reserve will hold a meeting on interest rates, whether Chairman Powell will announce the launch of the tapering of bond-purchases at the meeting or notwill be the focus of the market

Europe

European stocks have had mixed performance over the past five days ending Thursday. German equities were up 0.27%, French equities were down 0.62%, and UK equities were flat. The UK reported a 3.0% YoY rise in the August Consumer Price Index, the biggest increase in nine years, and the market is concerned about whether there will be any new policy announcements at the next Bank of England interest rate meeting. In addition, there are changes in the UK Cabinet, with Trade Secretary Liz Truss promoted to foreign secretary and Dominic Raab, former foreign secretary, was made justice minister, after drawing criticism over the withdrawal of troops from Afghanistan. Next week, the Eurozone will release its manufacturing and services PMI for September, while Germany will release its Septenber Ifo business sentiment index.

China

Under the impact of the Evergrande fallout and the latest developments in Macau's gaming sector, Hong Kong and China equities markets continued their slide, with the CSI 300 Index down 3.14% for the week, the HSI 4.9% lower, and the Hang Seng Technology Index losing 4.39%. The Southbound Bond Connect will be launched on 24 September with an annual quota of RMB500 billion and a daily quota of RMB20 billion. Evergrande's debt crisis intensifies as it is reported that China's Ministry of Housing and Construction informed relevant banks that Evergrande would not pay the upcoming interest due. S&P has also downgraded its rating to 'CC' with a negative outlook. Evergrande still has US$669 million in interest on its bonds outstanding this year. The regulatory action have reached the gaming industry in Macau, causing a sharp fall in all gambling stocks, the market is still assessing the impact of the policies on the industry. Next week, China will announce the latest Loan Prime Rate (LPR).

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 US

The US economy showed signs of slowing down and investors were concerned about the Federal Reserve's plans on tapering its bond-buying programme, US stocks consolidated near all-time highs, with the three indices retreating between 0.40% and 1.23% over the past five days ending Thursday. The latest Federal Reserve Beige Book showed that the US economy grew at a slightly slower pace in July-August this year, and that companies are still worried about supply-side issues; employment data also fell short of expectations, as the 235,000 non-farm jobs added in August was well below market expectations of 728,000. In the face of negative factors such as the prevalence of the Delta variant, the slowing global recovery, and global central banks' gradual exit from accommodative policies, prominent Wall Street players such as Goldman Sachs, Morgan Stanley, and Citibank all warned that US stocks may be at risk of a correction.

Another worrying factor is the US debt ceiling issue. US Treasury Secretary Janet Yellen said that the temporary measures taken to prevent the debt ceiling from being exceeded may be fully exhausted by October this year. She added that if the debt ceiling is not raised in time, it could pose a risk to the financial system. Next week, the US will release CPI for August, retail sales for August, and the University of Michigan Market Sentiment Index for September

Europe

European stocks retreated on the eve of the European Central Bank (ECB) meeting, weighing on the market over the past five days ending Thursday. The UK, French, and German equities falling between 1.16% and 1.95% over the period. The ECB kept interest rates unchanged after Thursday's meeting, but said it would moderate the pace of purchases under its emergency pandemic purchase programme (PEPP), but reiterated that the €1.85 trillion programme would stay in place until at least March next year, and will be extended if necessary. The German Bundestag election is scheduled to take place on 26 September, Chancellor Angela Merkel made a high-profile statement, supporting of her party's candidate and CDU leader Armin Laschett and criticising the rivals from SPD. However, Forsa polls showed that CDU support had fallen to a record low of 19%, raising concerns in the market. Next week, the UK will release the unemployment rate for July and CPI figures for August.

China

It was reported that the head of state of China and the US spoke on Friday, easing market tensions. The CSI 300 Index rose 0.88% that day, extending the weekly gain to 3.52%; the HSI also rose on Friday, reversing its earlier loss and posting a 1.17% gain for the week. China's export data for August beat market expectations in both US dollar and Renminbi terms, while Chinese CPI growth moderated to 0.8% YoY in August, against an uptick in PPI to 9.5% over the same period. On the other hand, the negative news about Evergrande continued, with Moody's and Fitch downgrading the company's credit rating, putting pressure on both debt and equity prices. It was reported that the mainland regulators had agreed to renegotiate the debt repayment arrangements between Evergrande and financial institutions. Next week, China will release data on fixed investment, industrial production, and retail sales.

 US

With market sentiment positive, US markets continued to edge higher, the Dow and S&P 500 were 0.66% and 1.50% higher over the past 5 days ending Thursday, while the tech heavy NASDAQ performed even better at 2.58% higher. The annual Jackson Hole meeting was held over the weekend, Federal Reserve Chairman Jerome Powell’s speech was more dovish than market expected. Although Powell admitted that inflation has already met Fed’s target, he stayed ambiguous on the timing and scale of tapering plans, only suggesting that it could start before the end of the year. He also mentioned key points to look out for in the economy, citing a ‘substantial slack remaining in the labour market’ and COVID as a ‘near term risk’. As for fundamentals, ISM manufacturing PMI came in strong at 59.9, surpassing market expectations and the previous value. Consumer confidence however, were slightly disappointing, as the 113.8 figure missed market expectations and were the lowest since February this year, possibly reflecting concerns over the Delta variant. Next week, the US will release PPI figures and the Fed Beige Book.

Europe

European equities remained steady over the week as markets await updates from the ECB, the UK, French, and German equity indices were up by 0.19% - 1.46% over the past 5 days ending Thursday. Economic indicators were mixed, while unemployment figures continue to improve, retail sales and consumer confidence slipped. The latest Eurozone CPI figure caught markets’ attention, the August figure came in at 3.0% YoY, surpassing market expectations and was 1% higher than the ECB target level, markets will likely keep an eye on the figure to see if it will be persistent. Next week, the ECB will hold its interest rate meeting, and Europe will release the Sentix Investor Confidence and ZEW economic sentiment.

China

Although the latest COVID outbreak in China has seemingly been contained, latest economic data from China have been rather surprising. Caixin services PMI came in at 46.7, which was far lower than the market expectation of 52 and the previous value of 54.9, marking the lowest level and the first contraction in 15 months. This raises concerns on the economy and triggered a fall of both the Chinese and Hong Kong equity indices on Friday. Internet giant Alibaba announced that it will invest 100 billion CNY to support ‘common prosperity’, followed Tecent in the path of supporting President Xi’s latest initiative. With no new regulatory actions announced, markets are still pricing in the regulatory impacts, the CSI 300 Index ended the week with a 0.33% gain, while the Hang Seng Index was also 1.94% higher. Next week, China will release its foreign reserves, CPI, and PPI figures.

Economic indicators in Japan continued the previous mixed trend, positive indicators such as the better than expected industrial production figures and modest PMIs were overshadowed by relatively weak household spending. And while the Q2 GDP is set to rebound from the miserable Q1 contraction, the expansion is likely limited, and unlikely to bring the economy back to the pre-pandemic level. The ongoing epidemic also poses as a headwind against the economic recovery, as the virus’ resurgence in the country prompted another round of state of emergency declaration.

The latest emergency declaration once again limited business activities in the country, which is another hit to the business sentiment after the attempt at stimulating the economy via the Olympic Games. With the lack of economic impetus, fundamentals should stay relatively weaker, we would not overweight in the market.