Christine TODD, Marco PIRONDINI, Paresh UPADHYAYA
the articles & research center news
In the first intra-meeting ease since the 2008 crisis, the Fed delivered a 50 basis-point rate cut. Market volatility and liquidity concerns have likely been the trigger for the emergency cut. The market reaction has been a sell-off in equities, while the 10-year Treasury yield touched new lows, as the Fed move is perceived as not being enough to offset recent deterioration in financial conditions due to the market reaction to the coronavirus outbreak. Markets still expect more.
Christine TODD, Paresh UPADHYAYA, Monica DEFEND
2019 proved a strong year for US assets, with US equity markets recording the strongest annual total return since 2013 and the US aggregate bond index up almost 9.0%. In addition, the past decade proved the best ever for the S&P 500 index, which returned 256% overall, well above its historical average.
Kenneth J. TAUBES, Christine TODD, Sergio BERTONCINI, Noah FUNDERBURK, Marco PIRONDINI, Eric MIJOT, Annalisa USARDI, Paresh UPADHYAYA
On 30 October the Federal Reserve cut the federal funds rate for the third time this year, while hinting at a pause over the next few months. The rate cut followed the Fed’s announcement on 11 October that it will address a liquidity shortage causing volatility in the overnight loan market by buying $60 billion per month in Treasury bills until Q2 2020 and support overnight repo operations through January 2020.
Paresh UPADHYAYA, Christine TODD
The Democratic Party has announced the opening of an impeachment inquiry against President Donald Trump following revelations that he pushed Ukrainian President Volodymyr Zelenskiy to investigate the son of Democratic opponent Joe Biden. The impeachment process is long and articulated. An 80% probability that Trump will be impeached, followed by acquittal in the Senate, which would keep him in office for the remainder of his term, is our base case scenario.
Paresh UPADHYAYA, Marco PIRONDINI, Christine TODD
In their September meetings, both the ECB and Fed confirmed their easing mode. The ECB delivered a full monetary policy package (pre-announced in previous months), combining conventional and unconventional tools, together with the introduction of new measures aimed at reducing the sideeffects of negative rates. The FOMC delivered its second rate cut and kept the easing bias while refraining from giving clues on forward guidance, on the back of the still supportive domestic economic picture and the mixed views emerging from the dots. For the first time, therefore, the Fed hinted at resuming the organic growth of its balance sheet: the objective will be to consistently calibrate reserves to the new level of rates, in order to keep optimal abundant liquidity levels, so as not to provide a further stimulus to the economy. In this piece, we focus on these very latest developments and on the monetary policy outlook.
Sergio BERTONCINI, Valentine AINOUZ
The Fed cut rates, but the market expects more: As expected the Federal Reserve lowered its target range for the Federal Funds rate by 25 basis, and now the market anticipates as many as three more cuts by the end of 2020. We think that is too much. In our view, the Fed is likely to pause to monitor the effects of the rate cuts on the economy, before acting again.
Christine TODD, Timothy ROWE, Jon DUENSING
The minutes from the latest ECB meeting suggest that the ECB is likely to proceed with a full set of measures in September, confirming not only the indications from President Draghi following the meeting but also the very latest statements by Olly Rehn, calling for the need for an “impactful and significant” package.
Sergio BERTONCINI, Annalisa USARDI
Deputy Head of Developed Market Strategy Research