By Lorcan Roche Kelly
Divided, they fall
The Federal Reserve’s 25 basis-point interest rate cut yesterday was accompanied by forecasts that showed officials were split over the need for further easing. In the post-decision press conference, Chairman Jerome Powell refused to be drawn on where he thinks rates should go for the rest of 2019, with markets pricing in about a 65% chance of another move lower by the end of the year. The differing opinions among FOMC members helped drive the spread between two- and 10-year Treasury yields close to inversion, with shorter-term yields rising as the long end slipped.
The Bank of Japan increased speculation it may ease policy further at its next meeting in October, with Governor Haruhiko Kuroda saying at today’s post-decision press conference that the institution is more positive towards adding stimulus than it was at its last gathering. The Swiss National Bank made no change to rate policy, while Norway’s central bank surprised by hiking rates for the fourth time in a year. The Bank of England makes its latest policy decision at 7:00 a.m. Eastern Time, with no change expected, and no press conference scheduled from Governor Mark Carney.
The OECD cut economic forecasts, projecting global growth of 2.9% this year – a drop from its 3.2% outlook from four months ago, and the slowest pace in a decade. The worsening prognosis echos similar worries expressed by almost every monetary policymaker over the past week, and also comments from corporations feeling the pressure. The Paris-based institution also warned that a no-deal Brexit would push the U.K. economy into recession.
Overnight, the MSCI Asia Pacific Index was 0.1% lower while Japan’s Topix index closed 0.6% higher, paring earlier gains as the yen strengthened in the wake of the Bank of Japan decision. In Europe, the Stoxx 600 Index was 0.3% higher at 5:50 a.m., with banks by far the best performers on the gauge. S&P 500 futures pointed to a lower open, the 10-year Treasury yield was at 1.793% and gold was holding under $1,500 an ounce.
There might be more interest than usual in this week’s initial jobless claims number when it is released at 8:30 a.m. after last week’s unexpected decline to 204,000. The Philadelphia Fed business outlook for September is due at the same time. At 10:00 a.m., existing home sales data for August will give another health check on the U.S. housing market after yesterday’s home starts data reached the highest level since 2007. Argentina’s second-quarter GDP is also published today, with the data unlikely to do much to move markets considering everything that has happened since.