Jul 29, 2016 | Investment Advice

International News (Issue 410) – 29 July 2016

International News – 29 July 2016

The Federal Reserve posted a more upbeat assessment of the US economy this week, indicating unsurprisingly that risks to the downside had ‘diminished’.

What was perhaps surprising was the continued apathy in global bond markets after the assessment, with US interest rate markets continuing to price in well over 1% LESS in policy tightening than the sum of Fed Board Governors individual rate hike expectations.

The benign outcome seems to continue to speak to a belief that in spite of the improving growth, the Federal Reserve will still be held back in its policy tightening by deflationary forces both within and external to the US economy.

This seems to be a very fragile status quo for now.

In China, share-markets were sold down after reports that Chinese regulators might tighten the ability of banks and wealth management houses to populate high-yielding ‘wealth management products’ with non-standard (ie higher risk) assets.

This is a genuine hotspot of risk within the Chinese financial sector since many banks have bundled up poorly performing loans and sold them off to households.

Again, we remain highly cautious on China’s economy and financial system in the interim.

This weekend we also get the results of the European bank ‘stress tests’. There is a lot of noise around the capital solvency of the Italian banks, but in truth I can’t recall the last time in recent years (certainly since 2012) these stress tests upturned a genuinely negative surprise.

The main issue in Europe remains the impending Italian referendum due in October and the potential volatility this creates around Italy’s commitment to the Union.

In earnings results this week, the tech-giants dominated with superb advertising growth at Facebook (FB) and continued strength in Alphabet (formerly known as Google) the key points to note.

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