What do you need to know?
US Federal Reserve Chair Jerome Powell said the central bank would start expanding its balance sheet again by resuming purchases of Treasury securities. He said the move did not mark a renewed long-term asset purchase programme – however, we argue it can be seen as equivalent to quantitative easing. The minutes of September’s Fed meeting showed members saw “more pronounced” downside risks to the economy, increasing market expectations of another rate cut.
Around the world
A no-deal Brexit would push UK debt to a 50-year high of £100bn, according to think-tank The Institute for Fiscal Studies. GDP figures released last week showed that the UK economy shrank 0.1% in August compared to July, weaker than expected - dragged down by output from the manufacturing sector. However, we forecast GDP growth of 0.3% in the third quarter, averting an immediate technical recession after the second quarter’s contraction.
Figure in focus
The World Bank cut its growth outlook for China to 6.1% for 2019, in line with our forecasts, from 6.6% in 2018. It said this reflected a shrinking labour force and weak productivity growth amid “less benign external conditions”, including the US/China trade war. However, more optimistically tariff negotiations between Washington and Beijing resumed last week.
Words of wisdom
A repurchase agreement, or repo, is a type of shortterm borrowing for investors who deal in government securities. The general collateral (GC) repo rate is the rate on transactions for which the securities provided as collateral are not fixed until after the trade is agreed. Hence the rate is driven by supply and demand for cash, rather than for the securities themselves. The US GC repo rate spiked to its highest level in more than a decade on 17 September, suggesting a scarcity of bank reserves.
What's coming up?
The first of October’s business surveys are published this week, including the German ZEW and US Empire State Manufacturing on Tuesday and the Philadelphia Fed Manufacturing on Thursday. On Wednesday, UK and Eurozone inflation figures are published. China reports third quarter GDP data on Friday. The European Council meets on Thursday and Friday where Brexit will be a key topic after the UK and Ireland discussed a “pathway to a deal”. The International Monetary Fund and World Bank annual meetings begin on Friday.
Performance to 30/01/20, in USD. Source: Factset, AXA IM. All of the index data is based on a total return basis