Some respite for equities

There was some respite for equity markets yesterday after a number of down days recently with both European and US indices advancing by around 1%. Core bond yields nudged higher while the dollar is generally a little firmer after the release of the minutes of the Fed’s end-July monetary policy meeting.  Meanwhile, sterling is a touch softer against the euro, trading at around 91.5p

The minutes of the Fed’s end-July meeting shows the central bank was divided about cutting interest rates. “Several” officials favoured keeping rates unchanged while acknowledging downside risks to the  economic outlook, while others felt it was appropriate to insure against those risks by cutting rates. In the end, the Fed opted to reduce rates by 25bps, though officials generally were keen not to convey a message that rates were on some pre-set path and instead that policy should be guided by forthcoming data

Events have moved on since the Fed meeting however and, in particular, trade tensions have intensified, so the market looks to Fed Chair Powell to provide an update on the outlook for the economy and for interest rates when he speaks at the Jackson Hole Symposium tomorrow

Angela Merkel has tasked Boris Johnson to come up with (acceptable) alternatives to the backstop within the next 30days, something of course that hasn’t been possible over the course of two years of negotiation. The UK Prime Minister has accepted the challenge, which one would be forgiven for thinking was thrown down by the German Chancellor more out of frustration than anything else. We’ll see what happens – in the meantime Johnson meets French President Macron today

The composite PMI for the both Germany and France surprisingly nudged up in August, which means the PMI for the Euro area as a whole – due this morning – will probably do likewise. Not that this will prevent the ECB from easing policy at its meeting next month, while it will publish the minutes of its most recent meeting later on today