Archive

HEM: Nov-25 Views & Challenges

• Pushback by Powell and peers trimmed some excessively dovish pricing, but the BoE converged down on poor data.
• The BoE should also resist pressure as underlying issues are unbroken by relatively marginal recent payback.
• We now see markets overpricing easing most in the UK. More weakness is needed to signal a threatening trend.

Fed Cuts Amid “Data Fog”; Path Ahead Uncertain

• The Fed’s 25bp rate cut to 3.75–4.00% was anticipated, with the decision reflecting rising labour market risks amid the data fog.
• Policy outlook hinges on future data. Inflation remains sticky, but the labour market weakening drove today’s pre-emptive move.
• A pause in QT’s asset runoff demonstrates heightened caution. December’s decision is “not on a preset course”.

China/US: Sauce For The Goose…

• Donald Trump and Xi Jinping’s 30 October summit will likely stave off, for now, any further escalation of trade tensions between China and the US.
• However, thanks to its monopoly on strategic minerals and Xi Jinping’s willingness to play a long game — even beyond ‘mere’ trade — China holds the stronger hand.
• Irrespective of whatever Mr Trump concedes this week to secure a ‘headline grabber’, Xi Jinping will therefore come back for more, not least on Taiwan.

By Alastair Newton

Credit Cockroaches Incubating

• Write-downs at two regional banks follow the cockroaches of First Brands and Tricolor bankruptcies, and should not be dismissed as isolated idiosyncratic events.
• Overly accommodative monetary conditions are stimulating markets to incubate cockroach eggs that may spawn as private credit malinvestment in the next recession.
• It is too early for these eggs to hatch, aided by the warm support of further Fed rate cuts. So, risk assets will probably keep on rising in the void of economic data releases.

By Philip Rush