Morning Minutes 9/19/2019

Morning Minutes

Several Central Banks Send Signals; Oil Rally Resumes

September 19, 2019
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

World stock markets are mixed this morning as investors digest statements and decisions from several major central banks overnight. Dow futures are down 14 points (essentially flat), the Dax is up 0.2%, the FTSE is up 0.6%, while the Hang Seng fell 1.0%.

Crude oil has started to move up again following two days of correction and consolidation with WTI and Brent up 2.0% and 2.6% respectively. As the week has progressed, the shock of the attack on Saudi production has passed, but the sense that there are significant risks to energy supply, that there is not as much excess capacity out there as previously thought and that it would not take much to upset global supply networks, remains with investors who may command a higher risk premium for some time to come.

It has been a busy 24 hours for interest rate decisions and monetary policy statements from central banks. Signals coming out of central bankers provide a sense that there is heightened concern about the political and economic risks out there but bankers are not panicking either and while ready to provide stimulus if needed, appear willing to watch and see how things evolve for now. Highlights include:

The US Fed Open Market Committee cut the Fed Funds rate by 0.25% to the 1.75% to 2.00% range as had been expected. It looks, however, like the Fed is pretty much done cutting. In the “Dot Plot” of FOMC member interest rate projections, the group only sees the potential for one more rate cut between now and the end of 2022 and the potential for 1-4 rate hikes over the next three years. In the vote, there was one dovish dissenter who wanted a 0.50% cut, and two hawkish dissenters who wanted no cut at all. In the Fed statement, there was more focus on the long-term 2.00% inflation target than on risks to the economy. So overall, it looks like unless something really bad happens, the Fed is pretty much done cutting rates. This news pushed treasury yields back up and sparked a rally in the US Dollar, depressing Gold.

The Bank of Japan maintained its benchmark rate at -0.1% but hinted that it could take stimulus action at its next meeting in October if needed.

The Bank of England maintained its benchmark rate but warned that Brexit could have an impact on future interest moves depending on what impact it has on the UK economy and inflation.

The Swiss National Bank maintained its negative benchmark rate but cut its GDP growth and inflation forecasts, and indicated it remains open to further stimulus action if needed.

Norway’s Norges Bank raised its benchmark rate by 0.25%, for the fourth time this year, surprising the street, but hinted that it is likely done raising rates for the time being.

As we move into the fall, investors may also look to corporations for insight into how trade tensions and political uncertainty are impacting the global economy. Yesterday, FedEx plunged 12.9% after cutting guidance. Beyond Meat is down 3.9% in pre-market trading after Tim Hortons announced that it is winding down sales of the plant-based meat-like products from its menu in all provinces except BC and Ontario.

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