Blain's Morning Porridge, submitted by Bill Blain of Shard Capital
With one hand the Fed giveth, a 25 bp basis point cut, but on the other it taketh – Powell’s “mid-cycle adjustment” left markets confused.
Where is the easing to negative-infinity they’d been promised? The yield curve inverted (spawning a host of headlines about how the bond market again predicts a recession), the dollar strengthened (well, of course it would), and stocks did nothing till they stumbled and fell a bit – a toddler screaming that “insuring against downside risks” should mean a promise of another cut, stunned when Powell said “it’s not the beginning of a long series of rate cuts.”
Thus occurred the most pointless rate cut in Fed history – easing rates in a “healthy” economy pretty much at full employment with a “favourable” outlook, where the only real problem is massively inflated financial asset bubbles. The effect will be to juice already distorted financial assets higher. Marvellous (US readers – sarcasm alert).
Two Fed Voting governors dissented – give them medals.
Trump tweeted: “As usual, Powell let us down.” Helpful. Donald wants a “lengthy and aggressive rate cut cycle which will keep pace with China, The European Union and other countries…” Predictable.
Blain’s Brexit Watch
As Boris plans to pour billions into No-Deal Preparations, the Irish accuse him of Bullying tactics, and Labour gets ready to offer a second referendum as their response, it’s all get terribly exciting. (It also deeply depressing – just writing this makes me wonder if I am suffering PTSD?) The feelgood Boris engendered just a week ago is already wearing thin. All the bluff and bluster needs balanced by something tangible. As yet, we aren’t seeing it. This is leading to lots of questions – does Boris need to engage with Brussels and go visit.
The Answer from Downing Street will be no. Dominic Cummings will insist. Let others respond to the challenge of an agreement that Boris has laid down. No Engagement. Europe will come to us. (Seriously?)
The result is going to be further uncertainty, confustion and opportunities for Project Fear Remoaners to snipe and moan.
Pundits now see the likelihood of a No-Deal at 30% and rising, with Sterling heading lower to $1.15.
Hold onto your seats boys and girls. This is going to get rough before we land.