MARKET UPDATE: US CUTS INTEREST RATES FOR FIRST TIME IN 10 YEARS

MARKET UPDATE: US CUTS INTEREST RATES FOR FIRST TIME IN 10 YEARS

1st January 0001

LAST WEEK – KEY TAKEAWAYS

US: Interest rate cut weighs on equities

• US equities fell after the Federal Reserve lowered interest rates for the first time in 10 years by 0.25%, blaming global economic uncertainty and trade tensions ;
• Meanwhile, the US economy added 164,000 jobs in July, in line with forecasts, although June’s figure was revised down from 224,000 to 193,000 .
• Omnis view: The markets were disappointed that the Fed decided against reducing rates by a greater margin and by comments from chairman Jay Powell claiming this was an isolated adjustment rather than the start of a series of cuts.

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Performance of the S&P 500 for week commencing 29th July 2019 (source: ft.com)

UK: Sterling weakens despite Johnson’s reassurance

• Sterling hit its lowest point against the US dollar since Article 50 was triggered after Michael Gove, the minister responsible for planning the UK’s departure from the EU, suggested a ‘no deal’ Brexit was the government’s working assumption;
• There was further pressure on sterling as the Bank of England downgraded its forecast for UK economic growth, but it held the interest rate at 0.75%.
• Omnis view: The Prime Minister subsequently rebutted Mr Gove and insisted that he still believes the chances of a ‘no deal’ Brexit are remote, although the two sides do not seem to be moving any closer to a resolution on the contentious issue of the Irish border.

Trade: Trump ramps up tensions with China

• Global equities fell after US President Donald Trump tweeted he would impose tariffs of 10% on an additional $300 billion worth of Chinese goods from the start of September, and China pledged to take countermeasures.
• Omnis view: The optimism following the meeting between President Trump and his Chinese counterpart Xi Jinping at the G20 summit has faded, and a breakthrough appears to be unlikely any time soon.

LOOKING AHEAD - TALKING POINTS

Economic data

• Thursday- Chinese imports, exports and balance of trade in July;
• Friday- Chinese inflation rate in July; UK economic growth in the second quarter.

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.