Date: July 19, 2019
Fed Officials Shake Markets With Rate Cut Comments
Two senior Federal Reserve officials stressed the need to act quickly if the U.S. economy looked likely to stumble, reinforcing bets the central bank could cut interest rates by as much as half a percentage point later this month. Fed Vice Chairman Richard Clarida and New York Fed chief John Williams buoyed stocks with their dovish remarks Thursday afternoon, in some of the final comments from central bankers before they enter their blackout period ahead of a July 30-31 policy meeting. Equities rose in Asia on Friday along with European futures, lifted by the prospect of a more aggressive policy move by the Fed. S&P 500 Index futures also gained, building on the U.S. gains seen late on Thursday, despite the New York Fed trying to walk back the comments from Williams. U.S. money markets priced in 41 basis points of easing in July after the two men spoke. Traders later wound that back after a New York Fed spokeswoman said that Williams’s comments had been in the context of an academic speech and were not about potential upcoming policy actions. Clarida was discussing the current economic outlook in a television interview.
U.K. Budget Deficit Offers Worrying Hints for Next Government
Britain posted its largest June budget deficit in four years as spending surged and taxes failed to grow, underscoring the fiscal risks facing the next prime minister. The increase means the gap in the second quarter is a third higher than a year earlier. That’s a wake-up call for Conservative leadership candidates Boris Johnson and Jeremy Hunt, whose proposed spending plans have already been criticized. While part of the widening was driven by higher interest payments on inflation linked debt, Samuel Tombs at Pantheon Macroeconomics said it’s a “tentative sign that the economy is flagging.” The economy may have stagnated this quarter, payback for a strong start to the year. After years of post-crisis austerity that narrowed Britain’s budget deficit, both candidates to be prime minister are seeking a change of tack, promising tens of billions of pounds of tax cuts and spending increases. Chancellor Philip Hammond, who oversaw part of that austerity drive, has been among those critical of the plans. The outlook for the public finances is additionally uncertain because of the threat of a no-deal Brexit hanging over the economy. On Thursday, the Office for Budget Responsibility warned the leadership hopefuls that there is no “free lunch” when it comes to funding their commitments. The independent watchdog also said that a no-deal Brexit could add 30 billion pounds ($38 billion) a year to the deficit, dashing any hopes of balancing the books by the mid-2020s.
U.S., China Trade Negotiators Talk for Second Time Since Truce
U.S. and Chinese senior officials spoke by phone this week, the second call since the late June summit at which the two sides agreed to a truce in their ongoing trade conflict. U.S. Trade Representative Robert Lighthizer and U.S. Treasury Steven Mnuchin spoke to the Chinese side earlier, a USTR spokesman said. China’s Commerce Ministry said Vice Premier Liu He and Commerce Minister Zhong Shan were among those on the call. There were no details released from both sides on what was discussed. China’s Ministry of Foreign Affairs spokesman Geng Shuang declined to comment on whether the two sides will next meet in Beijing at a regular briefing on Friday. Talks between the two sides collapsed in May and there’s been little public progress since Presidents Donald Trump and Xi Jinping agreed to a truce when they met in Japan last month. There are still deep differences between the two nations, with Commerce Secretary Wilbur Ross cautioning the negotiations would be a “long, involved process.” Trump this week reiterated that he could impose additional tariffs on Chinese imports if he wants, and complained again that China wasn’t buying the large volumes of U.S. agricultural goods that he claims Xi promised to purchase. Another major sticking point for any resumed negotiations will be how exactly the U.S. will ease trade restrictions on Chinese technology giant Huawei Technologies Co.
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