As the latest US jobs report missed expectations members of the Federal Reserve continue to deliver the message that they are prepared to act if necessary, to ensure the continued expansion of the US economy. Odds of a rate cut have now risen to 70% either this or next month.
It was the turn of Mario Draghi and the ECB on Thursday to announce their latest interest rate intensions. With interest rates already in negative territory, the ECB would on the face of it, appear to have less wriggle room when it comes to adjusting monetary. A few months ago, the ECB was hoping to continue to normalise monetary policy gently, the committee is now facing questions on the possibility of reintroducing bond purchase programs. As the economy remains weak and inflation is heading south. The one message that did come from today is that interest rates in Europe are not rising any time soon. Mario Draghi was accused by some today of offering a slightly ambiguous message. He must be also wary, as he leaves his post in a few months, of not leaving the next man a hostage to fortune.
German ten-year bunds continue to fall, the yield now reaching minus 0.25%. Meaning you now pay the German government 0.25 of a pct a year to borrow money from them for ten years. As an aside, there are now over 11 trillion dollars of debt in the world trading on a negative yield. Another possible measure of the level of fear in the global economy to date.
The World Bank is in on the act as they describe the global economy as having stumbled sharply in the first half of the year. The world bank has lowered its growth forecasts from 2.9 to 2.6% for 2019 and decreased its growth in trade from 3.6 to 2.6%.
As concerns remain at the growth in credit continues, central banks around the globe face a tricky time ahead. They want to continue to ensure that the global economy does not fall into an economic recession. With debt to GBP globally running at 3x, this is understandable. What they must be mindful of is lowering of interest rates once again. More than likely, this risk creating further leverage in the economy — making raising interest rates sometime in the future even harder and more painful.
Equity markets continued to recover aside from changing interest rate expectations; there was some speculation Trump was prepared to delay trade tariffs on Mexico. It would remain in everyone’s interests to come to an agreement. Donald Trumps continued residence in the White House is probably dependant on a decent stock market performance and the US economy holding up.