Trump wants many Fed cuts while Rosengren pushes back

Danske Research Team Danske Bank A/S

Market movers today

There are no data releases worth mentioning today; however, focus will be on political events ahead of the important PMI data on Thursday.
On Italy, markets will get a bit more clarity today on where the Italian government crisis is heading, as PM Conte is due to face a confidence vote in the Senate this afternoon. Should Conte fail the vote, the initiative reverts to President Mattarella, who could either call for snap elections or try to broker a new cross-party alliance between Five Star and Renzi's PD to avoid interference with the 2020 budgeting season. Either way, political uncertainty in Italy will remain elevated for the time being.
This morning, we have published a presentation illustrating why we expect the Fed to deliver five more cuts from now until March, see Presentation: Five more cuts from the Fed (chart pack) , 20 August.

Selected market news

Yesterday, the Fed's Rosengren pushed back against further rate cuts arguing that the US economy is still in good shape and he does not expect a significant slowdown. Rosengren, who voted against the first cut last month, said "I just want to see evidence we are going into something that is more a slowdown ". The Fed has been extraordinarily quiet in the past couple of weeks after the FOMC meeting and markets are awaiting more details from Fed chair Powell when he speaks at the annual Jackson Hole conference on Friday (we are also probably going to hear from some of the other FOMC members as well, but nothing is scheduled as of now).

In the other camp to Rosengren is US President Trump, who yesterday maintained the pressure on the Fed by tweeting that the Fed should cut rates by at least 100bp and possibly restart QE to support both the US and world economy. While we think the Fed will bark off the political pressure, we still think the economic reality means the Fed will deliver cuts over the next six months without pre-committing to more easing (see bullets above for more details).

Yesterday, the US delayed the Huawei ban for another 90 days as expected.

Ahead of Boris Johnson's meetings with Angela Merkel and Emmanuel Macron (tomorrow and Thursday), yesterday he sent a letter to EU Council President Donald Tusk to set out the UK's Brexit position, see Tweet . Basically, Johnson is saying that the deal in its current form is unable to pass the House of Commons due to the backstop. The EU has repeatedly rejected a re-opening of the Withdrawal Agreement and discarded the backstop insurance policy.

In China, the new lending rate, the Loan Prime Rate, aimed at lowering debt costs for Chinese businesses, was fixed at 4.25% versus the one-year lending rate at 4.35%.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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