Week Ending September 24th, 2021

Major stock indices recovered modestly last week. Fed meeting was the most closely watched event last week although majority of the participants looked concerned over the potential default of Evergrande also. After the meeting last week, Fed sent a strong signal to start the taper "soon" and raised the core inflation expectations for 2021  to 3.7% from 3%.

I think the Fed's statement and Powell's comments during the press conference were moderately hawkish. Powell also suggested that the taper may end around middle of 2022. I think rate hikes are going to be more closer to the end of taper than previously anticipated. I expect that taper will be starting as early as November as Powell suggested that he would be looking for continued improvement in labor market and he did not need to see a knockout report for September.

Although stocks rebounded last week but I expect volatility to remain elevated in the near term. The uncertainty over Evergrande's potential default remains and Evergrande's silence on dollar bond interest payment is in stark contrast with its treatment of domestic investors so far. Evergrande story tell us about the tight grip Chinese government has over the financial system in China more than anything else and I think there are lot many companies like Evergrande in China and Chinese banks are also a big mystery.