TODAY

08 Aug 19 (overnight)

  • President Trump’s tweet:
  • “Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much (and that I was right!). They must Cut Rates bigger and faster, and stop their ridiculous quantitative tightening NOW,”
  • Fed’s Evans:
  • On basis of low US. inflation alone, Jul interest rate cut was justified, and more policy accommodation needed
  • Economic headwinds mean cutting rates further could be reasonable
  • Brinkmanship trade negotiations mean volatility, ‘we have to be paying attention’
  • Sees ‘mid-cycle adjustment’ as fed now aiming for 50 basis points below neutral rate, rather than 50 bps above
  • Long-run neutral rate as 2.75%, could be lower now because of headwinds
  • Took note of overnight rate cuts in Asia, will be digesting ‘everything that’s going on’
  • RBNZ:
  • Cut rates by 50bps to 1.00%, vs -25bp expected
  • Committee agreed larger initial monetary stimulus would best ensure meeting inflation and employment objectives.
  • Growth headwinds are rising, global economic growth activity continues to weaken
  • Employment, inflation would likely ease in absence of additional stimulus
  • Post RBNZ press conference by Governor Orr:
  • Today’s decision doesn’t rule out any future action
  • Lowering the interest rate is “completely sensible” at this point in time
  • Over recent days MPC became convinced “more, sooner” better to reach targets
  • Easily within the realms of possibility that we might have to do negative interest rates
  • Today’s cut reduces the risk of having to use negative interest rates
  • RBA’s Bullock
  • Financial health of businesses looks sound, no threat to banks
  • Banks dealing with mortgage arrears in some regions, not a threat to stability
  • Difficulties in retail sector unlikely to pose risk to the banking sector
  • Profitability in mining sector highest in the past 10 years, balance sheets appear well placed to absorb shocks
  • Small businesses face tighter credit conditions
  • BOT:
  • Unexpectedly cuts policy rate by 25 bps to 1.50% (5-2 vote)
  • GDP growth seen lower than forecast
  • Rate cut to help economy, inflation
  • Worried about baht strength, will consider using additional tools to curb baht
  • Risks to financial stability remain
  • China reserves:
  • FX reserves of $3.104 trln at end-Jul vs $3.119 trln at end-Jun (reuters poll $3.101 trln)
  • Fall in China’s FX reserves in Jul due to changes in foreign exchange rates and prices of assets
  • China’s improving momentum and resilient real economy will support stabilisation of FX reserves
  • Gold reserves $88.876 bln at end-Jul vs $87.268 bln at end-Jun
  • HKMA:
  • Linked Exchange Rate System (LERS) operating normally
  • Not seeing large capital flows in and out Hong Kong
  • BI’s new Deputy Governor Destry Damayanti:
  • BI will continue to set accommodative monetary and macroprudential policy
  • Markets should not panic if macroeconomic stability is maintained
  • Continue to create space to expand bank liquidity, support loan growth
  • “Direction of monetary policy easing” to last long into the future
  • Markets:
  • US stocks rebounded intraday sharp losses at opening to close little changed, S&P 500 +0.1%, Dow -0.1%.
  • US 10-yr yield rebounded sharply after touching 1.593% to close 1.734% (+3.2bp).
  • NZD/USD sank over 2% after RBNZ but later pared losses to close 0.6446 (-1.2%).
  • USD/CNH posted an ‘inside day’, traded between 7.05 and 7.10 before closing at 7.0859 (+0.5%).
  • USD/SGD rebounded off 1.38 for a second day to marginally higher at 1.3826 from 1.3816.