Monetary policy

Global risk assets have had a testing week last tweek; at the time of writing, the S&P 500 is more than 8.5% below the record high it achieved just a month ago. So why are markets rattled?

“Weak consumer data has raised the question as to whether Abe will be able to go ahead with the second consumption tax rise next year. However, the underlying domestic economy is still improving and more stimulus measures may also be introduced,” says Simon Somerville

Those who were hoping for a shift in tone from the Federal Reserve regarding an imminent rate hike, encouraged by increasing signs of a recovery in the US, will be disappointed. The Fed has reiterated its concerns over the dynamics of the economy.

Normalisation of monetary policy in the West is the most significant challenge facing markets after an unprecedented period of low interest rates. Given the levels of debt, the process will necessarily take a long time and the repercussions on the rest of the global economy still remain unclear, according to Miles Geldard, manager of the Jupiter Strategic Total Return SICAV fund at Jupiter Asset Management.

Although the consensus regarding demand for the first TLTRO has tended to sag in recent trading sessions, the disappointment was great. Whereas demand was expected to reach between EUR 100bn and EUR 150bn, the European Central Bank (ECB) will in fact allot only EUR 86.2bn on 24 September.