The minutes confirmed recent statements by central bank president Jerome Powell who considers the interest rate level to be appropriate with regard to economic and inflation developments. Recently there has been increased speculation on the capital markets about a possible rate cut by the Fed. This is due to weak global economic trends, numerous political risks – in particular the trade conflict between the US and China –, and continued moderate inflationary pressure. This assessment was also supported by statements made by James Bullard, Head of the Fed of St. Louis, who is currently entitled to vote in the central bank's Open Market Committee. Bullard stressed that the Fed could cut key rates even in the event of a sustained economic upturn if inflation remained below the Fed's target of two percent. Bullard believes that such a move would enable the central bank to strengthen confidence in the inflation target. The Fed is currently holding its key interest rate within a range of 2.25 to 2.5 percent.
Investor sentiment remains tense. The main reason continues to be the latent uncertainty regarding a potential further escalation of the trade conflict between the US and China. The US government should now consider imposing restrictions on other Chinese companies similar to those imposed on telecommunications supplier Huawei. In the meantime, Huawei is coming more and more into distress. Yesterday the British chip developer ARM (part of the Japanese technology group Softbank) discontinued any cooperation with Huawei. ARM's chip architectures form the basis of the processors in almost all of today's smartphones and tablets –including Huawei's chips developed in-house. The background is that ARM's chip designs also include technology from the US, meaning that all business with Huawei falls under the US boycott. Under the massive pressure of the American sanctions, Huawei now wants to have its own operating system ready for use by next spring at the latest. On Wall Street, the Dow Jones Industrial closed with a minus of -0.4% and the broad S&P 500 with a minus of -0.3%. In Asia, too, most stock market indices tended southwards in view of the persistent trading tensions.
British Prime Minister Theresa May announced yesterday that she would be voting on her Brexit deal in London for the fourth time in the first week of June. May also promised a second Brexit referendum. In Westminster, the first reaction to May's plans was promptly negative and the British pound fell against the US dollar to a new low in four and a half months. Former Foreign Minister Boris Johnson, who himself wants to chair the Conservative Party, as well as numerous members of parliament, have already announced their intention to vote against May. According to a newspaper report, members of the lower house of parliament are preparing a new vote of no confidence against May. The Brexit has been keeping the British, Brussels and capital markets on their toes since the historic vote in June 2016.
|08:45||FR||Business Climate Index||105.0|
|09:15||FR||IHS Markit PMI Composite||50.1|
|09:30||GE||IHS Markit PMI Composite||52.2|
|10:00||EZ||IHS Markit PMI Composite||47.9|
|10:00||GE||Ifo Business Climate Index||99.2|
|15:45||US||IHS Markit PMI Composite||52.6|
|16:00||US||New Home Sales (M/M)||+4.5%|
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Source: LGT Bank (Switzerland) Ltd.
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