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The Federal Reserve cut rates yesterday by 25 points from 2.5% to 2.25%, the first cut by the Fed since 2008. This was a combative move to further stem the global slowdown and continuing China/US trade tensions. Equities sold off over 1% after the announcement with the US Dollar strengthening to fresh highs against all major currencies. Fed chairman Powell, during the post decision statement seemed to aggravate markets with comments suggesting he wasn’t looking to pull the trigger on further easing over the next few months. Powell went on to contradict himself by not ruling out further rate cuts as he “contemplates the future path.” Also announced was the end of the $3.8T asset portfolio, or QE, two months earlier than planned – this is the stimulus that was added after the fallout of the 2008 financial crisis/ recession.

The New Zealand Dollar and Australian Dollar both fall through pivotal support in the wake of the FOMC decision. The kiwi through 0.6550 and the Aussie extended below 0.6860 as buyer interest reflected uncertainty over whether the Fed would indeed cut rates again in the near future. The RBNZ is widely expected to cut rates to 1.25% on August 7. If we take notice of the Westpac view, they hold the view that the RBNZ will cut again in November this year. Certainly if we look at Wednesday’s ANZ Business Confidence release index at -44.3 much lower than was expected and the lowest since 2008, the RBNZ have just cause to cut. This data also highlights possible weaker inflation expectations possibly around 2.0% where as the RBNZ are looking towards a target of 3.0% raising prospects that a possible cut of 50 points is not unreasonable. Aussie CPI bounced back in the second quarter to 0.6% after a flat result in quarter one, underlying inflation remains well below the RBA’s target of 2-3% though. We think a further cut of 25 points is likely perhaps next week which will take the rate to 0.75%. Anything further will depend on a watch a react plan by the RBA. The good news out in Australia this week is that property prices are poised to lift by around 5% in the next 12 months with home loan lending expected to be boosted by 10%, this follows a major downturn in the Australian Property market. 

US ADP jobs figures rose to 156,000 jobs for July amid market concerns the US Jobs market was slowing. This is a reasonably robust ADP report showing ongoing labour market strength- especially since third quarter 2018 with wage inflation also remaining solid. The ADP is usually a sneak preview of Non-Farm Payroll- NFP which prints early Saturday morning and is expected to also come in around 160,000. 

Trade talks between US and Chinese officials will continue again in September in the US after the latest chats this week covered discussions around China increasing its purchasing of US made farm products. The two sides also spoke about intellectual property rights, services and agriculture. China seem to remain unfazed by the short term pain inflicted by the US government and look to play the patient “long game” with the US.

The Bank of England (BoE) left their benchmark rate unchanged at 0.75% in a unanimous 9-0 vote overnight saying they would keep rates unchanged for some time.

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