Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

IT’S a quiet week on the corporate front but there’s plenty to consider in terms of economic data and interest rates in the run up to the bank holiday weekend.

All eyes on the Fed

The big event of the week is Friday’s Jackson Hole central bank summit. A virtual event this year, rather than face-to-face in the Wyoming mountain resort, it will still provide an insight into the Federal Reserve’s latest thinking on interest rates and monetary policy generally. Watch out for guidance on when the Fed will start to reduce the $120bn a month it is currently spending on buying government bonds. The tapering of quantitative easing has the potential to spook investors if the messaging from Fed chair Jay Powell is not spot on.

Diverging stock markets

The S&P 500 is close to its all-time high at 4,442 as investors focus on a bumper second quarter results season. But it’s not good news all around the world. Hong Kong is in bear market territory as the Hang Seng index has fallen more than 20% below its February peak on the back of fears about Beijing’s latest regulatory clampdowns. The Chinese authorities are pushing for greater social cohesion at the expense of corporate profits in a range of sectors from financial technology to education, and healthcare to alcohol. Chinese stocks listed in the US are in the cross hairs too. An index of Chinese stocks quoted on the Nasdaq index has fallen more than half from its peak.

Commodity super-cycle gets a puncture

Industrial metals and gold, too, have lost momentum. In part that’s due to worries about a resurgence of Covid and slowing growth. It also reflects a rise in the dollar, in which most commodities are priced. An increase in the value of the US currency makes commodities more expensive to buyers in other countries and so weighs on their prices. Gold, in particular, at less than $1,800 an ounce is below where analysts would expect on the basis of falling inflation-adjusted interest rates, which should favour the yellow metal. The return to form of bitcoin - above $50,000 again - is another headwind for gold.

Dividends in focus

The Janus Henderson Global Dividend Index tracks the pay-outs from 1,200 of the world’s biggest companies. This week it showed a 26% increase in second quarter dividends, with 84% of companies either increasing or maintaining their payment to shareholders. The company expects dividends this year to be within 3% of their pre-pandemic peak.

Economic growth in the spotlight

Purchasing managers indices are the main economic highlight this week in Europe. Here in the UK, the recent ‘pingdemic’ has held things back, and the reading of 55.3 for August was lower than expected, but still well above the 50 mark that separates growth from contraction. In the rest of Europe, recovery is still well underway. The composite PMI was only just below July’s peak, at 59.5.

Five-year performance

(%) As at 31 July

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
Hang Seng 23.2 2.6 -2.7 -8.6 5.6

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns as at 31.07.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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