Market Update
President Donald Trump’s recorded comments at a closed-door gathering with U.S. diplomats seem set to add fuel to Democrats’ impeachment drive. Trump is seen describing the whistle-blower as “close to a spy” and demanded to know who the person is, in a video of the event obtained by Bloomberg News. The release of the complaint and testimony by acting intelligence chief Joseph Maguire yesterday raised the spectre of a White House “cover up” according to House Speaker Nancy Pelosi. House Intelligence Chairman Adam Schiff said it gave “a pretty good road map of allegations we need to investigate.” The S&P 500 Index closed lower for the fourth time in five days as the political turmoil damped demand for risk assets.
Markets and most Australian economists expected the Reserve Bank chief Philip Lowe to cut interest rates for the third time in five months on Tuesday to a record low of 0.75%. Their view was based on a cocktail of global risks: worsening economic growth mixed with shocks ranging from Hong Kong chaos to the U.S.-China dispute, not to mention Brexit and an impeachment probe of the U.S. president. And then there’s rising unemployment and falling confidence at home.
In a set-piece speech last week, Lowe acknowledged further cuts could well be required. He said the RBA couldn’t remain impervious to easing by its U.S. and European peers, otherwise, the Aussie dollar would spike and hurt growth. Yet he also repeated three times in the address that the economy is at a “gentle turning point” and likely to strengthen from here. “The governor sounded particularly downbeat on the global economy and downside risks generated by geopolitical developments,” said Belinda Allen, senior economist at Commonwealth Bank of Australia.
The RBA’s back-to-back cuts so far have matched the moves of the Federal Reserve — and there is no certainty that the latter will go lower. Indeed, one of the U.S.’s usually more dovish policy makers, Chicago Fed chief Charles Evans, last week said he doesn’t see the need to cut again because the two recent reductions should be enough.
European Desk
The European Commission’s monthly economic sentiment indicator dropped to the lowest level since 2015, with the industrial confidence sub-index plumbing a six-year trough. A slowdown in Germany continues to be one of the biggest drivers of the worsening performance, with the DIW Institute forecasting the region’s largest economy is already in a recession. European Central Bank Chief Economist Philip Lane said policy makers still have room to cut rates further if needed.
Even by the standards of recent EU-U.K. meetings, expectations for a breakthrough at today’s meeting between the two sides are very low. European officials have all but given up hope of finding a way forward in the coming weeks as Prime Minister Boris Johnson’s inflammatory rhetoric against his domestic opponents is seen as a hindrance. There was some good news for the embattled prime minister as he won a High Court case in Northern Ireland which had sought to have a no-deal Brexit declared a violation of the Good Friday peace accord. The pound weakened after Bank of England policy maker Michael Saunders said a rate cut may be needed even if a no-deal Brexit is avoided.