Bassanese Bites: Fed fatigue – July 22 2019
Global equities pulled back from record highs last week – reflecting an early batch of mixed US earnings results and continuing disappointment that the Fed is still not inclined to cut rates by an aggressive 0.5% next week. Trump’s renewed sabre rattling – suggesting a deal with China was still some way off and he could still raise tariffs – didn’t help. Meanwhile, US consumer spending held up nicely, with June retail sales comfortably beating market expectations. Gold and iron-ore prices reached new six-monthly highs, though oil slumped due to an easing in US-Iranian tensions.
The bottom line of all this, however, is that trade tensions have helped modestly slow global growth in recent months and US earnings are also going through a slow patch. With US equity valuations back at relatively high outright levels, the market is hoping for stronger interest rate support than the Fed is willing to give at this stage. With the US labour market tight and consumer spending still solid, however, the Fed quite rightly is not caving into aggressive market (and Presidential) demands. As it stands, the Fed is still on track to cut rates by 0.25% next week, but a showdown between the Fed and markets (not to mention the President) appears to be looming in the months that follow if the US economy keeps growing at least modestly.