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Hedge Clippings | Friday 02 August, 2019
With the US Federal reserve cutting interest rates for the first time in 11 years overnight - the last easing being an early Christmas present way back in 2008 - it was yet another sign that what The Donald wants, The Donald usually gets.
But not always. No sooner had Donald advised that the Fed's easing was the first in a series (as he had wanted), than Fed Chairman Jerome Powell contradicted him by saying:
"We're thinking of it essentially as a mid-cycle adjustment to policy. I'm contrasting it there with the beginning, for example, the beginning of a lengthy cutting cycle. That's not what we're seeing now. That's not our perspective or outlook."
No wonder the markets were confused! One wonders exactly where the "mid-cycle adjustment to policy" terminology came from, or for those wondering what the next move is, how to factor those comments into their investment decisions. As a result, markets that should have been buoyed by lower interest rates were left decidedly underwhelmed, although while the consensus seems to be that there will be at least one more cut in the US before this year is out, they weren't banking on it.
At the same time Trump flagged the potential for further tariff action against the Chinese, no doubt just to remind everyone that, as far as he's concerned, he holds the upper hand in the trade war.
From Australia's perspective the expectation from economists is certainly that there is at least one more cut of 0.25%, and possibly a further one after that, before the RBA is finished. Obviously what happens in the US will have some impact on that outcome, but so will the effect of the past two cuts and the stimulus provided by tax refunds which should start to flow through.
Elsewhere overnight news came through that the U.K.'s new prime minister had lost his first by-election (that didn't take long!), taking his parliamentary majority down to a minuscule, and minimum, of one. Boris is quite happy, it appears, to take the UK out of the EU with a no deal Brexit, which might just be a better outcome than a general election resulting in a Corbyn Labour government.
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