We won’t talk much on the election, but do want to draw your attention to this Youtube video by the Financial Times that talks about the possible outcomes and just how much of a gamble it is for Boris. If it goes wrong for him, his tenure could be the third shortest in UK Prime Ministerial history!
The US rate cut was entirely expected, but has been seen by most as a ‘hawkish cut’ – i.e. the last cut in a long time and if things go to plan the next move could well be up. US economic performance is still strong, inflation is coming onto target and there’s no real reason to pre–emptively cut rates to avert a crisis that may not be there. Obviously Trump’s not happy about it being this way and would far rather a race to the bottom when it comes to rates.
Trump’s also not happy at Boris’ deal with the EU: Speaking to Nigel Farage on LBC, Trump is of the belief that the deal wouldn‘t be conducive to a far reaching US-UK trade deal and because the US want to “do trade” and the UK want to “do trade” it needs to change. He’s also got some choice comments on Jeremy Corbyn and a very interesting tone of voice when he talks about “not even being involved” in the NHS (Have a listen – 2 minutes in on this video) In Trump’s ideal world, Boris and Nigel would join forces to become some kind of super leader, presumably comparable only to him in intellect.
Trump’s definitely got more to worry about than UK trade deals: Yesterday the House or Representatives approved to proceed with their impeachment inquiry. The vote set out the public phase of the enquiry and almost guarantees that this will then go to trial in the Senate. As Bloomberg points out, even though two presidents before him have been impeached by the House and then cleared by the Senate, this will be the first time one would then go on and stand for re-election! Bloomberg has a good read on this and summarises just how ugly this could get.
Back to the Federal Reserve; they could be getting closer to implementing a long standing repurchase facility that would free up the cash that banks are holding as part of their capital adequacy in the States. The facility would allow banks to exchange Treasuries for cash on demand and therefore alleviate the need to hold so much cash in reserve. This would be a pretty smart move, not only to allow banks to get more capital deployed but also to effect a system where there’s much more available liquidity because if banks had a bit of a cash crunch, they could easily use their Treasury holdings without having to make outright sales of them – and too many banks hitting the sell button at the same time would cause its own set of problems.
The Bank of England won’t be appointing a new governor ahead of the election, according to bank sources. Mark Carney’s term comes to a close at the end of January and under normal circumstances we would know a couple of months in advance who’s taking over – but this is all far from normal really, isn’t it?
Japan’s central bank might have some work to do after next year’s Olympics. According to reports, Shinzo Abe is going to ask for stimulus to prop up the economy once the Olympic effect has worn off. The coffers are emptier than usual after a series of natural disasters and the tourism boom and feel good factor could be short lived. PM Abe has also acknowledged that the new trade deal with Trump is going to mean more US imports of meat and dairy, which in turn will have a negative impact on Japanese farms so he wants to ready subsidies for them – a great example that not all trade deals are created equal.
Going into the weekend, we’re expecting a fairly quiet market. It’s non-farm payrolls numbers today, which normally has a bit of an impact, but having heard from the Fed a couple of days ago, the market isn’t going to be expecting them to change anything on the back of an unemployment number.
Have a great weekend.