Is the Fed set to pause its rate-cutting cycle?

Will the Fed confirm a pause in its rate-cutting cycle?

On Wednesday, minutes from the Federal Reserve’s October meeting on monetary policy will be released, giving investors a better sense of the central bank’s appetite for additional interest rate cuts later this year.

When Fed chair Jay Powell announced the central bank was trimming its benchmark interest rate for the third time in as many meetings last month, he made a point of signalling that the threshold for additional easing would be high, barring a noticeable deterioration in the economic data or a sharp escalation in the US-China trade war.

He reiterated this message last week during his testimony to US lawmakers, saying the current stance of monetary policy would remain appropriate “as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labour market, and inflation near our symmetric 2 per cent objective”.

The Fed’s recalibration comes amid nascent signs of progress on the trade war front between the US and China, and the release of further data pointing to a tight labour market and a relatively robust US consumer. While business investment has fared worse — with the most recent reading of gross domestic product indicating it dropped by the most in nearly four years — even the most bullish members of the Fed’s rating-setting committee appear to have embraced a pause. In October, James Bullard of the Federal Bank of St Louis did not dissent in favour of a more aggressive cut, as he had in September.

Investors have so far taken the Fed’s signalling to heart. Expectations of another quarter-point cut in December are low at just 8 per cent, according to futures prices compiled by Bloomberg. Colby Smith

Will South Africa cut its main lending rate again?

On Thursday the South African Reserve Bank will announce the outcome of its first monetary policy committee meeting since rating agency Moody’s offered the government a reprieve by keeping the nation’s sovereign debt in investment-grade territory.

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It is a close call as to whether or not the central bank will decide to cut its main lending rate, following a cut in July. It opted to keep the rate on hold at its last meeting in September.

Some think it is unlikely the bank will cut rates further, particularly as it can do little to stimulate the economy when so many of the nation’s problems are structural, such as the unemployment rate.

Moody’s decision on November 1 not to downgrade South Africa’s sovereign debt to junk was hardly a vote of confidence in Africa’s second-biggest economy. The agency cut its outlook for the debt from “stable” to “negative”, citing a material risk that the government would be unable to repair its finances.

The government now has three months to demonstrate a tangible change of course ahead of its budget in February, or a downgrade is inevitable, according to Luis Costa, lead strategist at Citi.

South Africa’s national debt, currently about R3tn (about $200bn), is set to balloon to R4.5tn during the next three years without drastic action, said Tito Mboweni, finance minister, in an address to parliament in October while presenting his midterm budget. Anna Gross

Which way will oil prices go?

Hopes for a trade deal between the US and China have kept crude prices hovering around $62 a barrel, and oil traders will be keenly looking out for any suggestions in the coming week that the world’s two largest economies might roll tariffs back.

Signs of a thaw in the trade war early last week led Brent crude to rise 1.5 per cent to $62.60 a barrel. But prices soon slipped after US president Donald Trump offered scant details on timing and stoked fears of negative consequences if a deal failed to be hammered out.

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Huge uncertainty lingers and oil markets will continue to hang on Mr Trump’s every word and tweet for more details on a possible easing of trade tensions.

Speculation over further production cuts by Opec and its allies is the other key factor driving oil prices. Under current plans, the cartel will curb production by 1.2m barrels a day until March 2020 even as some analysts have questioned whether the group will agree in December to deeper production cuts.

Mohammed al-Rumhy, Oman’s energy minister, said the cartel would probably extend its current deal and seek to boost compliance with the existing agreement, but steer clear of further cuts. For Opec kingpin Saudi Arabia, production cuts ahead of a landmark initial public offering for its state oil company may not be viewed favourably.

Any further clues in the next week on Opec’s December decision could nudge oil prices either way. Harry Dempsey



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