Monetary Mapping & Mopping


As investors head into the fourth quarter, the VIX, often referred to as the market’s ‘fear gauge’ is in an uptrend. Back last month, US benchmark stock indices saw some of the worst monthly performance since March 2020. In fact, the SPX and NQ finished Q3 virtually unchanged. More importantly, they trimmed most of their gains. The Dow declined.

Central banks and policy makers are setting the stage for the oncoming months where most central banks have issued their latest monetary policy statements last week with their observations and intentions.

A growing number of Fed officials expect an interest rate increase next year as the US central bank steams ahead with a reduction of its massive stimulus program that will probably be announced in November. Nine officials on the FOMC now expect a US rate increase next year, according to projections released, with the remaining nine earmarking in a later “lift-off”. In June, just seven officials were forecasting a rise in 2022. All eyes are on the US government as the fourth quarter gets underway. While a shutdown has been avoided for now, the debt ceiling has not yet been raised as Democrats and Republicans struggle to come to terms. September’s non-farm payrolls report will also be closely watched. A materially lower outcome risks derailing the central bank’s lose policy unwinding. Most of the market jitters unfolded into the tail end of the third quarter. That is also in line with historical standards. September tends to be dismal month for sentiment as traders come back online from the summer lull. A lot of attention was on the Federal Reserve, where Chair Jerome Powell signaled that policy tapering could be completed by the middle of next year.

This pushed the 10-year Treasury yield, and front-end government bond rates, higher. A combination of this and volatility aided the haven-linked USD. The Greenback outperformed most of its peers in Q3, especially against the sentiment-linked Aussie. Fears of a Chinese economic slowdown, especially amid the fluid environment around Evergrande, weighed against growth-linked assets.

The BoE has signaled additional concern about rising inflation, predicting it was now likely to peak above 4% and stay at this level into the second quarter of next year, but stressed that no immediate action was needed to quell price rises. Voting unanimously to hold its main policy rate at the historic low of 0.1% in its September meeting, the bank’s Monetary Policy Committee said its decision on interest rates would probably depend on what happened to unemployment and labor shortages after the furlough scheme winds up at the end of this month. Meanwhile in Europe, the European Central Bank could remain relatively dovish compared to the Federal Reserve. That could leave EUR/USD biased lower as policymakers stick to the script that inflation could be transitory. In the coming months, this narrative will be increasingly tested.

The BoJ kept monetary policy steady but offered a bleaker view on exports and output, reinforcing expectations the bank will maintain its massive stimulus even as major counterparts eye a withdrawal of crisis-mode support. The gloom hanging over manufacturers, hit by Asian factory shutdowns caused by the coronavirus pandemic, adds to woes for Japan’s fragile recovery, which has been hobbled by weak consumption.

China’s central bank net-injected the most short-term liquidity in eight months into the financial system, with markets roiled by concerns over China Evergrande Group’s debt crisis. The People’s Bank of China pumped in 110 billion yuan ($17 billion) of cash with seven- and 14-day reverse repurchase agreements. The RBA said in minutes of its Sept. 7 policy meeting that interest rates are unlikely to be raised before 2024, a timeline that is likely to put it among the last of the world’s major central banks to begin normalizing policy settings. RBA Gov. Philip Lowe recently ruled out the use of higher interest rates to slow house price growth, saying such a move would come at the cost of fewer jobs and slower economic growth.
As we process the news coming out from policy makers and its impact on economic sentiment, our team continues to monitor key developments on the global macro and central bank front.

On the Shiny metal, XAU weakened in September, trimming gains from earlier in the third quarter. A rising US Dollar and bond yields could make it a difficult environment for XAU/USD. Meanwhile, crude oil prices trimmed losses in the third quarter. Robust demand estimates, coupled with supply constraints, are bolstering energy prices. OPEC doesn’t seem poised to increase output into the end of the year. XAU may not immediately offer good cues in the intermediate-term and a macro wedge formation may take through Q4 to fully develop. Having said that, there’s big support down around the 1675 level should we face something extraordinary. So once again world central banks take charge to map our direction ‘forward’ and mop away market uncertainty. Let’s close 2021 with a positive returns on our investment decisions, especially when its earnings season. And don’t forget to rebalance and hedge.

Received from Client

Author BioGeoffrey Muns is an Independent Financial Advisor and Planner certified from the UK, US and UAE based out of Dubai for the past 25 years. He also works in the PE/VC space and is a seasoned investment banker having worked with international banks and investment firms in the region.


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