No surprise to us here at The Kapital News, the Federal Reserve cut its benchmark interest rate by 25bps. This was highly expected by the markets and the Fed did not want to upset the apple cart. The markets whip-sawed as they are apt to do during the conclusion of a FOMC meeting, however, the major indexes closed higher for the day. The small caps in the Russell 2000 were the exception, losing 4 points for the day. When pressed by the media as to what the Fed is likely to do next, Chairman Jay Powell, said the main factor is going to be the inflation rate. Yes, other data and geopolitical events will still be on the radar, but the main focal point is inflation. If history is any guide, the actions undertaken by Japan and European monetary authorities have yet to see their inflation rates rise to meet their respective targets. So why does the Fed think that they will reach theirs? So for all intents and purposes, the Fed is in a new wait-and-see mode for the time being – barring some major geopolitical event, or heaven forbid that the stock market should correct again. This market has been reflated and inflated, and reflated again, and nobody wants to take responsibility when this thing corrects to fair value and so the Fed will keep pumping liquidity into the system – more hot air for this bubble.
US Q3 GDP came in at 1.9% on a preliminary report, slightly beating market expectations. The growth was sustained by consumer spending and government spending. Recall that the US budget deficit just hit a 7-year high of $984B. All that and still below 2%. Business investment is virtually in contraction and net exports continues to be a drag on GDP. It is worth noting that business investment will lead consumer behavior as businesses are likely to cut back on other costs before they start reducing hours and/or layoffs.
On the US/China trade front, the economic summit that was scheduled for November in Chile has been cancelled. Given the recent and ongoing protests that are taking place, the Chilean government has cancelled the event. It remains to be seen at this point as to whether this event will be hosted in a different country. Recall, this is where Presidents Trump and Xi were supposed to sign a portion of phase 1 or the entirety of phase 1. Will this cause hiccups? We were also informed by Treasury Secretary Mnuchin that even if a deal is signed, it will take a while for China to ramp up its purchases of US agricultural products. Are you surprised? China has had o source these ag products from other countries. Signing a deal doesn’t just change things immediately, so it’ll be interested to see how things transpire. Stay diversified, stay vigilant, and stay with The Kapital News. #Recession #EndTheFed #Economy #TradeWar #USA #China #Chile #Protests #Freedom #Politics #Truth #Justice #Peace #Invest #Debt