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Last week's market volatility is showing some signs of leveling out.

But the sudden and severe moves in financial markets that had investors reeling on a Sunday night in August left many experts searching for a clean explanation. The Federal Reserve's decision to hold rates had been well-telegraphed, and the July jobs report was soft but not alarming.

And for US 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 US 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 US 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 US tells us something about economic hierarchy in a world of increasing geopolitical competition."

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 that was 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 away from the current themes driving the market action in the US — AI investment, Fed rate cuts, and the yen carry trade. Meanwhile, underneath the surface of last week's talk of recession in the US, China reported consumer and wholesale inflation numbers that did little to assuage fears about outright deflation in the world's second-largest economy.

As Shearing wrote, "While evidence of economic weakness in China is real, in the US it is still at most only tentative."

That investors are responding more to what could happen in the US economy — rather than what is happening in China — is consistent on a few levels.

For one, markets are almost always more interested in the future than the present. Whether something is getting better or worse is more important for an investment thesis than its current condition.

More concretely, Shearing outlined how China's trade balance and the continued international primacy of the dollar simply make the US economy a bigger driver of global financial sentiment.

And it doesn't seem likely that, in the near term, this focus for markets will change. Because the two biggest calendar-based events for investors this year are, after all, American-made: the Fed's September policy meeting and November's presidential election.

"There have been times in recent years where concerns about a deeper downturn in China have unsettled investors," Shearing wrote.

"But the events of the past week serve as a reminder that in an era of growing geopolitical competition between China and the US, it is still America that matters most for global markets."

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