Biden aide says U.S. will keep targeting ISIS-K. Hurricane Ida slams into Louisiana. China rejects U.S. allegations on Covid origins probe. Here’s what you need to know this Monday morning.
A U.S. drone strike blew up a vehicle headed for Kabul airport that officials said was carrying suicide bombers. National Security Adviser Jake Sullivan signaled that the U.S. will keep targeting the Islamic State in Afghanistan, saying two members killed in an air strike on Friday had been planning additional attacks. The U.S. and more than 90 other countries said they expect the Taliban to honor pledges to allow their citizens and at-risk Afghans who worked with foreign governments to leave Afghanistan freely. Meanwhile, Joe Biden’s hopes of keeping the Taliban in check will rely heavily on Pakistan, a nation which has close ties to the militant group.
Hurricane Ida slammed into Louisiana, packing 150 mile (241 kilometer) per hour winds and threatening to inundate New Orleans with mass flooding, power outages and destruction. Hundreds of thousands of homes are without power. The Mississippi River is flowing in reverse in southeastern Louisiana as the storm forces vast volumes of seawater ashore, according to flood-control authorities. The cost of the storm could exceed $40 billion. It comes on the 16th anniversary of Hurricane Katrina’s landfall, which left the region in ruins and killed more than 1,800 people.
Stocks are set to climb Monday after U.S. equities rallied to a record and Treasuries advanced. Equity futures for Japan, Australia and Hong Kong rose. The S&P 500 hit a new peak Friday following Chair Powell’s Jackson Hole speech, in which he said the Fed may start paring bond purchases this year, but is in no hurry to raise interest rates and would be guided by data to weigh risks from the delta virus variant. Powell didn’t give a specific timeline for scaling back stimulus. Meanwhile, these charts show how the latest Covid outbreak to sweep the U.S. is tempering the pace of economic recovery.
A senior Chinese health official rejected a U.S. report blaming China for stonewalling an investigation into the origins of the coronavirus. China says it opposes the politicization of tracing the origins of the virus or using the subject as a tool to shift blame. Chinese authorities said the U.S. should treat origins tracing as a “scientific matter” and support scientists in various countries who are seeking answers on how the virus started. In Singapore health officials said 80% of the population had now been fully vaccinated — a key milestone that paves the way for the city to forge ahead with reopening; Japan is considering mixing shots to speed up vaccinations; and unvaccinated people who catch the delta variant are twice as likely to be hospitalized as those infected with the alpha strain, according to a new study.
China’s crackdown on technology companies is prompting global investors to look for new opportunities across Asia, contributing to a record jump in initial public offerings from India to South Korea that shows few signs of slowing. Tech companies from those two countries and Southeast Asia have raised $8 billion from first-time share sales this year, already blowing past the previous annual peak. The tally is poised to get bigger with planned listings by companies including Indian fintech giant Paytm and Indonesian internet conglomerate GoTo, both of which may break local fundraising records. Long overshadowed by their Chinese peers, this new crop of startups is coming of age just as Beijing’s clampdown puts a damper on listing and growth prospects.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours:
And finally, here’s what Tracy’s interested in today
Last week, ahead of Jackson Hole, I wrote that buoyant stock prices coupled with low yields on short-term bonds might suggest "the central bank has been able to successfully divorce the idea of 'tapering' from interest rate hikes in order to avoid a repeat taper tantrum." Now that the big event is over, it looks like the Federal Reserve has pulled it off. In his speech, Fed Chair Jerome Powell suggested the central bank could start cutting back on its asset purchases later this year without necessarily firing the starting gun on hiking rates. As Jon Turek at Cheap Convexity put it, Powell was was "hawkish on taper and dovish on hikes."
So markets now know that the taper can be divorced from interest rate hikes. But the key question now is for how long? There was a roughly two-year gap between the last time the Fed started winding down QE and when it began raising rates, but this time around there's a chance the gap will be much shorter given the sharp rebound in the U.S. economy. On which note, the jobs report that's expected to come out later this week could well turn out to be a more interesting event for markets than Jackson Hole, as investors who now understand the sequencing of tightening start grappling with the timing.
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