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Continuing to rip-off the USA

Today's news headlines:

  • ‘Irish PM Leo Varadkar rebuffs Boris Johnson over Brexit plan'. In a tense phone call, Varadkar warned Johnson that the EU will not back down over his demand for a renegotiated deal and that Johnson was heading for a Brexit dead end. Varadkar affirmed that the EU would back Ireland in efforts to avoid a hard border and reminded Johnson of his commitments to the Good Friday agreement. (Financial Times)
  • 'Five things to watch in the Fed decision'.1. The US is pretty much locked into cutting interest rates by 25bps later today, with a larger 50bps cut unlikely. 2. The guidance should see the Fed repeat its mantra of 'act as appropriate to sustain the expansion'. 3. We may see a couple of dissenters that advocate leaving rates unchanged since US fundamental data remains solid. 4. Fed Chief Jerome Powell will likely stress global weakness as the primary justification behind cutting rates. 5. Markets are expected to scale back expectations of future cuts if the Fed is less dovish than anticipated. (Financial Times)

Dead on arrival

Every market participant is eagerly awaiting the Federal Reserve’s policy decision this evening, in what is one of the most hotly-debated yet mostly semantic arguments of the year. After all, most people agree the US economy is ticking along at a reasonable rate, and some might argue at a very good pace. The token rate decreases, whether 25 or 50 bp cuts this year are more about forcing other central banks to ease than any domestic concerns occluding the horizon. It’s a great non-issue that everyone loves to debate.

The focus should be on the EU, where growth is ‘getting worse and worse’ according to the outgoing European Central Bank (ECB) President, Mario Draghi. French Gross Domestic Product (GDP) has already disappointed, despite fiscal packages recently unleashed to soothe the yellow vests. Spain marginally beat expectations due to a mostly temporary uplift in industrial investment, but political uncertainty has risen; acting Prime Minister, Pedro Sanchez, is unable to form a government which may potentially result in elections later this year. Still ahead this morning, Italian GDP is forecast to come in at 0.0% and overall Euro Area growth is expected to be half of the meagre 0.4% recorded last quarter.

Bottom line: The fact that there are so many structural challenges facing the EU just at a time when growth is slipping, should worry markets. An organised monetary policy guided by the ECB is nearing its practical limits on policy easing, which is at odds with decentralised fiscal policies bound by German conservatism. It’s clear the ECB is already preparing a package of measures to combat stagnation, but fiscal policy, particularly in Germany, is out-of-touch with reality. Given this deteriorating economic foundation, toppy equity prices seem particularly vulnerable to a correction. Yesterday the Stoxx 600 sold off by 1.5% from the top of the one-year trading range.  

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Source: Bloomberg

Trump's election focus

With no real progress made in US-China trade negotiations, Donald Trump appears to be refocusing his preferred method of communication, Twitter, on his 2020 re-election mission. According to Trump, China has failed in its commitment to large-scale purchases of agricultural products.

This week, Trump took to his favourite social platform again to slam the Chinese regime, speculating on how the 2020 election outcome might affect the trade war narrative. Trump tweeted 'if & when I win, the deal that they get will be much tougher than what we are negotiating now… or no deal at all'. He predicted that if a Democrat wins, China would 'continue to rip off the USA'. The lack of urgency from the US indicates that Trump is relatively comfortable in allowing the trade war to meander on, especially considering the US economy portrays a picture of good health.

The longer the impasse continues, it may play further to Trump's advantage. He can Claim a tougher stance on China that his democratic rivals, firming support among his voter base and undermining the opposition. It’s possible we may start to see the uncertainty weigh more heavily on domestic growth and dent his economic credentials.

Bottom line: US GDP growth was already worse than the 3.0% level that Trump promised, and worse than his predecessor. It’s no wonder then he’s exerting pressure on the Fed to ease policy; what he doesn’t seem to realise is that his antics have a larger impact on growth than any token interest rate cut the Fed can muster.


The Pound slipped towards fresh lows around the $1.21 mark in yesterday's session amid growing concerns over a disorderly departure from the EU. The sell-off for Sterling abated into this morning's session as markets await further political developments. Today's empty UK data calendar means the focus will now shift to the Fed meeting later in the session.


The trade-weighted Euro Index posted modest gains in yesterday's session ahead of today's important GDP growth and inflation data releases. From a technical perspective, the Euro looks to have bottomed out following last week's ECB meeting, but further upside will be limited due to the perilous nature of the Eurozone economy.


The pair has bounced to the mid $1.11's after bottoming out last week at a more than two-year low. The Dollar Index has traded in a tight range in the past few days as markets await key guidance from the Federal Reserve later.

All content is written by the Global Reach Trading Desk. The opinions expressed are not the view of Global Reach Group and are not intended as investment advice.