The ECB delivered at least as much as was expected to investors on Thursday adding further stimulus to the flagging euro area economy. Cutting interest rates further into negative territory and starting a 20 billion euro a month bond purchase programme, in an open-ended commitment. The ECB expects interest rates to remain at this level or possibly lower (not ruling out further cuts) until the inflation outlook “robustly converge to a level sufficiently close to but below 2% within its projection horizon, and such convergence has been persistent.” Next week it is the turn of the Federal Reserve to add further stimulus as economists expect a cut in interest rates by 25bp.
t us leave Brexit of today's commentary. There is little to add except to say one gets a greater sense that a deal of some kind might be found ahead of the 31st. If that were to be the case another General Election is in the offing. The introduction of the fixed-term parliament act seems to have ensured we regularly head back to the polling station as ever we did.
Equity prices continued their recovery over the past week, the FTSE 100 and the S&P 500 gaining over 1%. The FTSE 100 rally despite a better week for sterling, and a momentous week in British Politics. Sterling recovered as the market reduced the odds on a “no-deal” Brexit, or possibly no Brexit. Equities globally rallied as news that China and the US plan to resume trade talks in October. Economic data for the largest economy in the world remains mixed. Commenting on the latest Purchasing Manager Survey from Markit, “US businesses reported one of the toughest months since the 2008 financial crisis in August”. Trade wars appear to be one of the major concerns. The Markit Chief Business Economist goes on to add that the August Purchasing Manager Survey suggests annualised GDP growth of 1%.
Sterling continues its rally despite the apparent ever-increasing political uncertainty the country finds itself in. Boris Johnson has called for a General Election as MP’s passed a bill to try and extend the deadline beyond the 31 of October and prevent a no deal. These are fascinating times as the opposition uniquely turned down the opportunity to go to the polls leaving Boris Johnson with the dilemma of a calling a vote of no confidence in himself to force the issue.
The pound whipsawed in trading down on Tuesday at one point falling below 1.19 briefly. Later in the day rallied back above 1.2 to the US dollar as the Conservative party lost its government majority and Parliament looked to prevent a “no-deal” outcome. Boris Johnson has threatened to call a General Election however this requires a two-thirds majority, so he yet may be thwarted. The Conservatives are polling ahead of the Labour and Boris Johnson may feel this is the only way to receive the mandate he requires to negotiate an alternative deal with Europe. Parliament is also looking to delay Brexit till January 2020.