Donald Trump calls for Fed interest rate cut, Wall St rebounds on global stimulus efforts…

Updated August 20, 2019 11:52:53

US President Donald Trump has urged the Federal Reserve to boost America’s economy by cutting interest rates by 1 percentage point and implementing other stimulus measures, as he continued to apply pressure to the central bank.

“The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well,” Mr Trump said in a Twitter post.

He also said the US economy is doing “tremendously well”, but lamented that the greenback is “so strong” that “it is sadly hurting other parts of the world”.

In recent months, Mr Trump has posted a series of critical tweets directed at the Federal Reserve and its chairman Jerome Powell.

The President tweeted, on Monday (local time), that Mr Powell had a “horrendous lack of vision” — and last week, called him “clueless” for not cutting interest rates sooner.

It comes after last week’s global sell-off, which led to hundreds of billions of dollars being wiped off the value of stock markets across the world.

Investors are also worried that the escalating US-China trade war, with no end in sight, could trigger a global economic downturn.

Market snapshot at 7:50am (AEST):

  • ASX SPI futures +0.2pc at 6,440, ASX 200 (Monday’s close) +1pc at 6,467
  • AUD: 67.74 US cents, 56.06 British pence, 60.99 euro cents, 71.87 Japanese yen, $NZ1.05
  • US: Dow Jones +1pc at 26,136, S&P 500 +1.2pc at 2,924, Nasdaq +1.4pc at 8,003
  • Europe: FTSE 100 +1pc at 7,190, DAX +1.3pc at 11,715, CAC +1.3pc at 5,372, Euro Stoxx 50 +1.2pc at 3,369
  • Commodities: Brent crude +1.8pc at $US59.70/barrel, spot gold -1.2pc at $US1,495/ounce, iron ore -1.3pc at $US88.40/tonne

Germany and China economic stimulus

Meanwhile, investor sentiment was lifted by reports of plans in China and Germany to introduce measures that might stimulate their slowing economies — calming fears of a severe downturn in the global economy that were stoked last week as bond yields fell.

Germany’s Finance Minister Olaf Scholz said, on Sunday, his country has the fiscal strength to counter any future economic crisis “with full force”.

He also said, however, that Berlin could potentially free up 50 billion euros ($82 billion) of extra spending — effectively ditching its balanced budget rule.

Germany’s economy is on the brink of a recession as its GDP contracted by 0.1 per cent in the June quarter, according to official figures released last week.

In addition, China’s central bank unveiled a key interest rate reform on Saturday, which is expected to reduce borrowing costs for companies.

“It is now mandatory for new loans with tenors of one year and above five years to choose loan prime rates (LPR) as their benchmark, while the rates of loans with other tenors can be fully determined by commercial banks,” ANZ wrote in a note.

“In our view, this is equivalent to a 45-basis-point rate cut, because the PBoC [People’s Bank of China] has pledged to breach the ‘implicit lower bound’ that prevents loan rates from falling.”

Stock markets surge

In New York, the Dow Jones index jumped 250 points, or 1 per cent, to 26,136.

The benchmark S&P 500 (+1.2pc) and tech-heavy Nasdaq indices (+1.4pc) closed sharply higher, led by a rebound in energy and technology stocks.

It was a similar story in Europe, with London’s FTSE (+1pc) and Germany’s DAX (+1.3pc) ending with solid gains.

Global markets were also boosted after Washington extended a temporary reprieve it had given to Huawei Technologies by a further 90 days.

This permits the Chinese tech giant to continue buying supplies from US companies so it can service its existing customers.

However, the US has added a further 46 Huawei affiliates to its “US Entity List”, a blacklist of firms with which the US will not trade.

“Once you get past the headlines and look at the details it is hard to get too excited about the rebound in equities,” said NAB senior foreign exchange strategist Rodrigo Catril.

“For one, the temporarily delay on the Huawei ban was expected and according to US Commerce Secretary Wilbur Ross the reason for the extension was to allow US companies ‘a little more time to wean themselves off’ their dependency on Huawei.”

Spot gold prices have fallen sharply, down 1.2 per cent to $US1,495 an ounce — as investors decided to take on more risk and dump safe-haven assets.

Brent crude prices have jumped 1.9 per cent to $US59.74 per barrel after an attack on a Saudi oil facility by Yemeni separatists on Saturday, with traders also looking for signs that Sino-US trade tensions could ease.


Topics: business-economics-and-finance, stockmarket, markets, currency, australia, united-states

First posted August 20, 2019 07:46:25