Global weekly: Guardians of growth

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The actions of central bankers and policymakers soothed markets this week. The slowdown in China, while negatively affecting other emerging markets, should not impact global growth.

Financial markets are settling down after a tumultuous couple weeks since the “Black Monday” of 24 August. Ten-year Treasury and Bund yields have moved lower, commodity prices are stabilising and equity markets are edging higher.

A key reason for the reduced nervousness is that central banks and policymakers have stepped in and are taking action to reassure markets and investors. The European Central Bank (ECB) is now expected to increase its asset purchasing programme in the next few months, and we believe that the US Federal Reserve will likely postpone its first rate hike until December. This week Chinese officials confirmed the government’s commitment to support economic growth by accelerating the introduction of proactive fiscal policies and reforms. And, in Japan, investor sentiment was improved by the prospect of further monetary easing by the central bank and the government’s plans to reduce taxes.

While market volatility has lessened in response to the actions of policymakers, a lag between implementation and results could rekindle market nervousness. And, with central bankers back to extinguishing fires, the return to more normal monetary policy is being delayed.

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