Great fall of China is being rebuilt but there's work to do
Jeremy Stewart is head of wealth management and private banking at Danske Bank
What a week it has been for world markets, with intense periods of volatility around the globe. Last week I referred to the two key initiatives that would help stabilise markets.
Chinese authorities duly obliged with another cut in interest rates and the US Federal Reserve has made it clear that it will take account of current financial market uncertainty in its deliberations on raising US interest rates. This is a good start.
Markets finished the week in much calmer territory, buoyed by a degree of recovery in Chinese equities and evidence supporting positive views on global growth.
The fundamental questions centre on prospects for this growth and associated implications for trade and corporate earnings.
There has been a long and sustained bull run and it is not therefore surprising that markets are considering equity valuations in the context of prospective economic conditions.
It is a long term game and we can expect further spells of volatility in the short term, until some of the key issues become clearer.
Some commentators believe although there is evidence of a slowdown in the rate of global growth, it is not sufficient to justify the current sell off.
To put things in a broader context, Chinese growth is still expected to settle at about 5% or 6% - and in the US growth is predicted to peak at around 3%.
With the likely shifts in economic balance and power over the next few years, it is inevitable that markets will respond negatively to any uncertainty that emerges from time to time.
I would suspect that, although things have settled somewhat, we will see some further near term volatility. This should not concern long term investors, but will make life difficult for short term traders and speculators.
In general, US economic data has been solid over the past two months, although there are signs of a significant inventory build-up in both the manufacturing and retail sectors. This will reduce the immediate need for further production, as holding stock can be expensive.
Likewise, wage growth has been restrained, but as employment continues to grow there will probably be inflationary pressures.
In the UK, the most important data releases due are the Purchasing Manager Index figures for August, as leading indicators for economic activity.
The scope for improvement is limited due to the current strength of the sterling, which is putting pressure on the manufacturing sector.
Over the next few weeks we will be very dependent on policy makers, principally in the US, China and the EU making the correct decisions in a coordinated manner.