Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
There are suggestions from major central banks that they may begin to withdraw their policies intended to support economic growth. The Bank of England chief Andrew Bailey confirmed he believes “the minimum conditions needed for tighter monetary policy conditions have been met”. Tightening monetary policy usually involves slowing down overheated economic growth or curbing inflation by raising interest rates.
The US Federal Reserve (the Fed) has said “strong data underpins the case for unveiling a Fed tapering plan this month”. Tapering is where central banks slow down their purchase of assets such as government bonds. These purchases are done to stimulate economic growth, so by purchasing less the aim is to slow down economic growth. The European Central Bank recently said it will also “trim emergency bond purchases over the coming quarter”.
Slowing economic growth shouldn’t necessarily be viewed negatively, as economies or inflation growing too quickly can be harmful if left unchecked. If these policies do indeed play out (and we can’t rule out U-turns from central banks) it’ll be with a view to restoring a bit more economic balance.
The UAE launched 50 economic initiatives to attract $150BN in overseas investment over 9 years. Some of the new initiatives include new visa categories for freelancers and entrepreneurs, allowing skilled workers greater flexibility in sponsoring family members and more time to find a job if made redundant before being required to leave the country.
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In the UK, the Prime Minister set out plans to raise taxes on employees, employers and some investors to try and fix a health and social care funding crisis by way of a 1.25 percentage point increase in National Insurance.
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House prices in the UK rose by 0.7% m/m in August - the biggest gain for three months. Annually, it is growing at 7.1% y/y and there are no signs of the sharp slowdown that was expected following the end of the stamp duty relief. Meanwhile in the US, July home prices gained 1.8% m/m to 18% y/y. It is the largest, 12-month gain in 45 years.
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