The US central bank cut interest rates for only the second time since 2008, amid concerns about slowing global growth and trade wars. As expected, the Federal Reserve lowered the target range for its key interest rate by 25 basis points to between 1.75% and 2%. The Federal Reserve policymakers said they expect the economy to grow 2.2% this year, faster than they forecast in June.
Officials were divided about the decision and over the need for future cuts, seven members of the Federal Reserve Open Markets Committee, which sets the rates, voted in favour of Wednesday’s cut, including Mr Powell.
Cutting rates helps fuel economic activity, by making it cheaper to borrow money for both businesses and consumers.
China and the United States had “constructive” discussions on trade in Washington, state news agency Xinhua said on Saturday. The two countries agreed to keep communicating on related issues and discussed the details of the next round of trade talks in October, Xinhua said, without providing other details.
Trade experts, executives and government officials in both countries say that even if the September and October talks produced an interim deal, the U.S.-China trade war has hardened into a political and ideological battle that runs far deeper than tariffs and could take years to resolve.
The Fed was not the only central bank to meet this week. The central banks of China, Brazil, Saudi Arabia and Taiwan all cut interest rates, following the Fed. The Bank of England, Bank of Japan, Reserve Bank of Australia and the South African Reserve Bank all held rates steady but were more dovish in their guidance.
Tensions remain elevated in the Middle East in the wake of last week’s attack against Saudi Arabia’s oil infrastructure. The Abqaiq oil facility and the Khurais oil field in Saudi Arabia were severely damaged, affecting the global oil supply. On Wednesday, the kingdom’s defence ministry showed off what it said were the remains of drones and cruise missiles proving Iranian involvement. The US has also said Iran was responsible, with Secretary of State Mike Pompeo calling the strikes “an act of war”.
Oil prices saw their biggest jump in 30 years on Monday, rising by nearly 15%. Despite this, Saudi Arabia says oil production will resume as normal by the end of September. Oil prices have since eased back.
For the week, global equities were modestly lower after the spike in oil prices. U.S. equities ended the week down with the Dow Jones (-1.05%), S&P 500 (-0.51%) and Nasdaq (-0.72%) all negative over the week. In Europe the Euro Stoxx 50 (+0.60%) ended the week in the green, while the FTSE 100 (-0.31%) ended lower. In Asia, the Nikkei 225 (+0.41%) ended positive while the Shanghai Composite (-0.82%) ended softer.
Market Moves of the Week
The South African rand weakened over the week, weighed down by concerns about domestic economic growth and geopolitical tensions in the Middle East. As one of the most-traded emerging market currencies, the rand is highly susceptible to swings in global risk appetite.
The South African Reserve Bank left its main interest rate on hold at 6.5% on Thursday, disappointing some investors who had hoped that another rate cut could help stimulate the domestic economy. The Bank retained its growth forecasts at 0.6% for 2019, but revised down its 2020 outlook to 1.5%, from 1.8%, and 2021 to 1.8% from 2% previously.
The JSE edged a little higher on Friday, but fell 1.25% for the week, with Naspers and Prosus leading the losses. Naspers rose 2.85% to R2,450 on Friday but fell 1.88% for the week. Prosus, its new internet subsidiary that listed in Amsterdam last week, recovered 1.67% to R1,131.91 on Friday, but was down 4.67% for the week.
Chart of the Week
The Monetary Policy Committee voted unanimously to maintain the repurchase rate at 6.5%. The decision was in line with the forecast of all but four of the 18 economists in a Bloomberg survey. The rest projected a 25 basis-point cut, as was the case in July. A cut in November may materialise, particularly if Moody’s retains its stable outlook.
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