Even as China Stumbles, Investors Focus On U.S. Economy

Market volatility is showing signs of leveling out, but the sudden and severe moves in financial markets that had investors reeling left many experts searching for a clear explanation.

For U.S. investors, the answer to problems at home might be found by looking abroad.

The Federal Reserve's decision to hold rates had been well-telegraphed, and the July jobs report was soft but not alarming, Myles Udland reported for Yahoo Finance. For U.S. investors, the answer to problems at home might be found by looking abroad.

In a client note on Monday, Capital Economics' group chief economist Neil Shearing noted that for all “the Sturm und Drang” about the health of the U.S. economy last week, the problems investors think they're looking for in America can actually be found in China.

"The economic data have softened, corporate executives are sounding the alarm over slowing sales, and policymakers are signaling that they will provide more support to the economy. This is not the U.S., but China," Shearing wrote.

"Yet mounting concerns about the growth outlook for the world’s second-largest economy have largely flown under the radar of investors. The contrast with the convulsion in markets caused by concerns about the outlook for the U.S. tells us something about economic hierarchy in a world of increasing geopolitical competition," he added.

As investors last week recalled the various August surprises that have shaken markets over the years, there were no doubt many who remembered the sharp sell-off of August 2015, triggered by a surprise weakening of the renminbi from the PBOC and soft economic data out of China.

Yet this call-and-response move in markets feels far removed from the current themes driving the market action in the U.S. — AI investment, Fed rate cuts, and the yen carry trade.