· The Federal Reserve approved a much-anticipated quarter-point interest rate cut Wednesday but offered few indications that further reductions are ahead as members split on what to do next.
Following its two-day policy meeting, the central bank announced that it would take down its benchmark overnight lending rate to a target range of 1.75% to 2%. That comes nearly two months after the policymaking Federal Open Market Committee went ahead with its first cut in 11 years.
The Fed also lowered the interest it pays on excess bank reserves (IOER) to 1.8% and set its offering rate for any emergency repo operations at 1.70%, five basis points below the bottom of the new target range.
Major U.S. stock exchanges dropped after the decision was announced.
· President Donald Trump on Wednesday said the Federal Reserve and its chairman, Jerome Powell, have “no ‘guts,’ no sense, no vision!”
Federal Reserve Chairman Jerome Powell said Wednesday that the Fed may have to resume the organic growth of its balance sheet sooner than expected to help ease money markets.
“Going forward, we’re going to be very closely monitoring market developments and assessing their implications for the appropriate level of reserves,” Powell said at a news conference. “And we’re going to be assessing the question of when it will appropriate to resume the organic growth of our balance sheet.”
· The dollar firmed on Wednesday after the Federal Reserve cut interest rates by a quarter of a percentage point, as expected, but gave an uncertain outlook on future easing.
The dollar index, tracking the unit against a basket of other currencies, was up 0.35% at 98.60. The dollar touched session peaks against the yen after the Fed decision, rising in seven of the last eight sessions.
The euro fell 0.3% to $1.1031 Aside from cutting interest rates, the Fed changed two key rates used to manage its main policy lever. It lowered the interest it pays on excess bank reserves (IOER) by 30 basis points, to 1.80%. The rate now sits 20 basis points below the top of the target range, compared to 15 basis points previously.
· Bank of Japan policymakers will debate the feasibility of ramping up already massive stimulus on Thursday but are expected to save their limited ammunition for a while longer, despite growing risks to the country’s fragile economic recovery.
While the BOJ is expected to reiterate its readiness to act if needed to shore up growth, a weak yen may take some of the pressure off to immediately follow other major central banks which are easing policy, analysts say.
· President Donald Trump would be better off not cutting a trade deal with China as it could backfire on him ahead of the 2020 U.S. election, according to the managing director and chief economist at the CME Group.
“The political issue is very serious here,” Bluford Putnam told CNBC Wednesday.
“President Trump faces a Democratic opposition that really doesn’t like China, but he also faces — on part of his Republican Party — people that want him to be much tougher on China. So, he’s way better off never cutting a (trade) deal. If he cuts a deal, he’ll be criticized from both sides,” he told CNBC’s “Squawk Box Europe.”
“If he just stays tough, he rides through it just fine. Which is, by the way, the same issues (Chinese President) Xi Jinping has: He can’t give in to a bully like President Trump, so what’s he going to do? He doesn’t want a deal either,” he added.
Talks to resume the trade dispute have so far yielded little in the way of a solution. In fact, the situation deteriorated in recent weeks with new U.S. tariffs on $112 billion of Chinese consumer goods, and more due later this year. China responded with retaliatory tariffs on U.S. goods worth $75 billion.
The new tariffs could cost the average American household $1,000 a year, according to a J.P. Morgan estimate and are seen to have hit both U.S. and global growth. In July, the International Monetary Fund forecast U.S. growth to be 2.6% in 2019 and moderating to 1.9% in 2020.
The fund downgraded its forecast for global growth to 3.2% in 2019, down from its April forecast of 3.3%, citing “trade and technology tensions that dent sentiment and slow investment” as one of the reasons. It forecast global growth of 3.5% in 2020.
· European Council President Donald Tusk and Britain’s Prime Minister Boris Johnson are due to hold bilateral talks on Brexit on the sidelines of a U.N. session in New York next week, according to an official with the bloc.
Both are due to attend the United Nations General Assembly gathering though the exact timing of their bilateral meeting is yet to be confirmed.
The EU has pushed back this week against Johnson’s assertions that a new Brexit deal was in the making and warned Britain was heading for a damaging, chaotic split as soon as Oct. 31.
EU leaders will meet for a make-or-break summit in Brussels two weeks before Britain’s departure date.
· Oil prices retreated on Wednesday, extending the decline in the previous session after President Donald Trump said he ordered the Treasury Department to “substantially increase” sanctions on Iran.
· Oil prices retreated about 2% on Wednesday, extending the previous day’s declines after Saudi Arabia said it would quickly restore full production following last weekend’s attacks on its facilities and as U.S. crude stockpiles rose unexpectedly.
· Brent crude oil futures LCOc1 ended the session down 95 cents, or 1.5%, at $63.60 a barrel while U.S. West Texas Intermediate (WTI) crude CLc1 futures settled $1.23, or 2.1% lower, at $58.11.
U.S. crude stockpiles rose by 1.1 million barrels last week, Energy Information Administration data showed, compared with analysts’ expectations for a decrease of 2.5 million barrels. Still, crude inventories in Cushing, Oklahoma, the delivery point for benchmark futures, declined for the 11th week in a row last week, the longest streak of losses since August 2018.
· U.S. President Donald Trump said on Wednesday there were many options short of war with Iran after U.S. ally Saudi Arabia displayed remnants of drones and missiles it said were used in a crippling attack on its oil sites that was “unquestionably sponsored” by Tehran.
“There are many options. There’s the ultimate option and there are options that are a lot less than that. And we’ll see,” Trump told reporters in Los Angeles. “I’m saying the ultimate option meaning go in — war.”
Reference: Reuters, CNBC
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