ECB Restarts the Printing Press

Widely expected, the European Central Bank cut interest rates on bank reserves, deposits for the first time since 2016, by a tenth percentage point to -0.5%. Additionally, it will restart its quantitative easing which it drew to a close in 2018. From November this year it promised to buy 20 billion euros worth of bonds each month. Initially the EURUSD dropped to an intraday low of 1.0926 but recovered to trade above 1.10 in the aftermath.

Ahead of this week’s Federal Reserve meeting, US President Donald Trump launched a fresh tirade against Chair Jerome Powell. Yet again he mentioned interest rates should be cut to zero or below and the US missing a great opportunity of refinancing its debt cheaply.

It also appears that President Trump listened to the Vice Premier of China Liu He’s request and delayed the tariffs increase for two weeks to October 15 instead of October 1. It was portrayed as a good will gesture due to China celebrating its 70th Anniversary. On top of that China’s premier Li Keqiang is quoted as saying ‘US and China should find solutions to the trade dispute’.

In an attempt to boost cash flow into the country, China has removed investment quota limit which, so far, has capped the purchase of certain cross border securities products. The move will be welcome by over-sea’s investors hopeful that this will be only the beginning. On Thursday, Bloomberg reported that Trump would be ready to consider an interim trade deal with China thus freezing the conflict. The report could highlight some concerns on the economy among members of the US Administration ahead of the election year.

Back in the UK, we had the surprise, better than expected, July GDP data showing an increase of 0.3% month on month versus +0.1% expected. The biggest contributor was services output which returned to growth (+0.3%), highest monthly jump since November 2018. Nonetheless, the Office for National Statistics said growth is to remain weak for the rest of the year.

On another note, Dominic Raab, the Secretary of State for Foreign Affairs, reiterated that the UK Government will respect the rule of law but said Prime Minister Johnson won’t go to Brussels to ask for an extension but to negotiate a new deal. As things stand, the Parliament is suspended until October 14 and also there will be no general election. The pound meanwhile continued its good run against the US dollar reaching 1.25.

Oil is back in focus with a vengeance as drones attacks on two Saudi Arabian oil plants over the weekend sparked a 15% jump in prices on the opening Sunday evening.