Equities continued to march higher in August, despite a brief wobble due to fears around COVID-19 variants. The Delta variant particularly, combined with waning vaccine immunity, is causing some weakness in economic data, but the long-term growth outlook is intact. Although total cases are increasing, the tools are now available to prevent the worst outcomes, most likely including booster shots.

Chinese stocks were some of the worst performers as the government took steps to address perceived misalignment’s with central policy. The most high-profile example being the regulation of the education sector, where private tutoring costs are seen as a key hurdle to higher birth rates. The much-awaited Jackson Hole conference was a damp squib as Fed chair Powell held a dovish course. Tapering before year end seems likely now, but interest rate hikes are not imminent, and the hurdle for interest rate hikes in 2022 remains high.

The Bank of England also seems committed to lower interest rates, with the unwinding of Quantitative Easing their priority. Bond yields rose modestly, as markets digested Central bank communications, but remain below the March highs. Corporate bonds outperformed, as growth and earnings supported fundamentals. Looking ahead, market focus will shift towards the crucial Fed meeting on the 22nd and the German federal elections on the 26th.