The Federal Reserve expectedly lowered rates 25 basis points to 1.50-1.75, however the dollar sunk following the subsequent comments from Fed Chairman Powell who stated “monetary policy is in a good place” and it would take a “material re-assessment” of monetary outlook for considering further rate cuts. Powell also mentioned that the Fed will closely monitor trade developments and that the Phase 1 potential agreement with China, if signed and put into effect, could have an effect on reducing trade tensions and reducing uncertainty.
Eurozone Gross Domestic Product numbers will be released this morning for the third quarter, as well as preliminary inflation figures for October. Both are expected to show a slowdown in the Eurozone economy. 0.1% quarterly growth is what economists expect after growing only 0.2% in the second quarter.
Opinion polls in the UK continue to show Prime Minister Boris Johnson’s Conservative Party in the lead. There is still plenty of time before the election where markets would prefer a clear victory over a hung Parliament. Today marks the day that the UK was to leave the EU, before the three month extension was agreed.
The Bank of Japan left their rates unchanged as expected. Their statement regarding rates signaled there are more rate cuts ahead. Short term interest rates were kept at -0.1%. Their statement indicated that the Bank expects “short and long term interest rates to remain at present of lower levels as long as necessary”. The BOJ made it clear that it will be ready to cut rates further at any time if the economic outlook deteriorates any further.
The Canadian Dollar was also under pressure after the Bank of Canada kept rates unchanged at 1.75%, however the accompanying statement included the “possibility” of an “insurance” rate cut. The statement also commented on the trade war’s damage to business investment and exports. Traders looked at these comments as “dovish” and the Loonie was sold off.
China released their PMI manufacturing numbers overnight, coming in at 49.3, the sixth straight month that showed contraction. The expected number was 49.8. Export orders were down, dropping for the 17th month, and while the employment number improved slightly, it remains well below the 50 level. China’s data release shows that China’s growth is at its lowest level in 30 years, with no turnaround in sight. Traders still hope that the Phase 1 trade deal between the US and China will provide some improvement in the Chinese economy. While most had hoped the trade deal would be signed in November at the APEC summit, it will not be possible following Chilean President Pinera’s cancellation of the summit due to protests in Chile. The trade talks continue despite the uncertainty of where Presidents Trump and Xi will meet.