Tradingview Weekly Market Wrap 31 August 2021

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As expected, the Fed’s annual symposium in Jackson Hole brought nothing new to light. Federal Reserve Chairman Jerome Powell simply indicated that the US central bank could begin to reduce its massive support for the economy by the end of the year, not as quickly as many in the market had assumed. Along with this, Powell once again stated that inflation is suffering temporary effects that will fade once the economic reopening in all sectors is consolidated.

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Therefore, markets will remain attentive to the macroeconomic outlook both within the US and abroad. Although the job market continues to recover, the new wave of coronavirus, as well as natural disasters such as Hurricane Ida, could negatively affect economic growth. According to the Fed’s rhetoric, if the central bank tightens its economic policy in response to temporary factors, its effects are likely to come after they are needed. The only problem is that while the Fed waits, the system continues to infuse itself with liquidity. The reverse repo market reached 1,120,015 billion US dollars. As before, many firms don’t know what to do with that much cash. The Fed has also recently increased the number of financial firms that can access this type of facility and raised in June from 0 to 0.05% the interest that entities receive for carrying out the ‘reverse repo’ operation. In this context, the question arises – will we see anything new at the FOMC meeting on September 22?

Another issue that continues to worry the markets is the infrastructure plan. Apparently, the US House of Representatives last week approved a key step in moving forward the $ 3.5 trillion budget of the Joe Biden Administration’s social agenda. We recall that the new plan includes reforms to promote the fight against climate change and poverty, expand social security for the elderly (Medicare) and invest in education, among others. The funds to carry out the project will be obtained from a rise in taxes on the wealthiest and large companies.

Republicans are expected to reject and bloc the socially focused budget plan to be voted on in late fall. Pelosi has made it a goal that both the social item and the infrastructure plan are approved by October 1. Democrats want to pass the reforms through a mechanism called reconciliation, which allows them to push through the laws with a simple minority rather than by 60 out of 100 votes in the Senate.

On the geopolitical side, the departure of US troops and their NATO allies from Afghanistan has not only caused new turmoil in the region but also worsened the image of the world’s leading economy. In other words, it was seen by many as a terrible blow to America’s credibility, to its reliability as a partner, and indeed to its moral standing in world affairs.

As expected, the arrival of the Taliban to power brought nothing but terror and instability. Thus, last Thursday there was an explosion near the Kabul airport, causing more than a hundred deaths. In principle, behind the said attack was EI-K (ISIS-K, for its acronym in English) or Province of the Islamic State of Khorasan, the regional branch of the self-proclaimed Islamic State (IS) that is active in Afghanistan and Pakistan and that are enemies of the Taliban.

US President Joe Biden, in retaliation, has vowed revenge against the Islamic State terrorist group. In fact, the next day the US military announced the first retaliatory attacks. The Pentagon explained that the operation left two “high profile” dead.

What will happen now? The US command is awaiting further attacks by “Islamic State” terrorists, possibly including the use of rockets or cars filled with explosives. The Americans, in response, “will kill the terrorists in latrines.” And not just for revenge, but also to boost Biden’s ratings.

 

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