Prepared by Jeff Halley, Senior Market Analyst
Wall Street rallied overnight as traders ignored some very obvious discord on the path of rate cuts from the FOMC Minutes, concentrating on sparkling results from big-box retailer Target, and home improvement retailer Lowe. Both produced sparkling results following on from Walmart last week and saw their shares jump massively in New York trading. The U.S. existing home sales for July came in above expectations at 2.50% as mortgage rates tracked lower.
Internationally, Thailand’s exports staged a recovery yesterday, rising 4.28% y/y for July and even Argentina had a pleasant surprise for everyone. Its balance of payments rose to $951 million against a consensus of $684 million.
The only blot on the copybook was the Congressional Budget Office raising its forecast for the U.S. Government deficit to a mind-boggling $960 billion, which in all fairness, President Trump said was going to be the case anyway. I can understand why he wants rates lower for longer now, although I don’t know where he would have squeezed in the necessary dollars to buy Greenland.
Circling back to the Federal Reserve, it is clear that Corporate America is coping with trade tensions for now and that the mighty American consumer is still spending. The U.S. has a yield curve that actually pays interest thanks to partial interest rate normalisation. It leaves the Fed with monetary wiggle room should it be required, leaving it in a group of about one internationally.
Whether to potentially squander this advantage, by engaging in an easing cycle too soon and when it isn’t necessary, quite likely explains the fractious nature of the minutes of last FOMC meeting. Two governors wanted a 50 bps, two didn’t want a cut at all, and the rest settled on 25 bps with the emphasis it