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Full text of the July 31, 2019 FOMC statement

  
  Analysis
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The full text of the July 31 statement from the FOMC

Federal Reserve issues FOMC statement
Information received since the Federal Open Market Committee met in
June indicates that the labor market remains strong and that economic
activity has been rising at a moderate rate. Job gains have been solid,
on average, in recent months, and the unemployment rate has remained
low. Although growth of household spending has picked up from earlier in
the year, growth of business fixed investment has been soft. On a
12-month basis, overall inflation and inflation for items other than
food and energy are running below 2 percent. Market-based measures of
inflation compensation remain low; survey-based measures of longer-term
inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster
maximum employment and price stability. In light of the implications of
global developments for the economic outlook as well as muted inflation
pressures, the Committee decided to lower the target range for the
federal funds rate to 2 to 2-1/4 percent. This action supports the
Committee’s view that sustained expansion of economic activity, strong
labor market conditions, and inflation near the Committee’s symmetric 2
percent objective are the most likely outcomes, but uncertainties about
this outlook remain. As the Committee contemplates the future path of
the target range for the federal funds rate, it will continue to monitor
the implications of incoming information for the economic outlook and
will act as appropriate to sustain the expansion, with a strong labor
market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the
target range for the federal funds rate, the Committee will assess
realized and expected economic conditions relative to its maximum
employment objective and its symmetric 2 percent inflation objective.
This assessment will take into account a wide range of information,
including measures of labor market conditions, indicators of inflation
pressures and inflation expectations, and readings on financial and
international developments.

The Committee will conclude the reduction of its aggregate securities
holdings in the System Open Market Account in August, two months
earlier than previously indicated.

Voting for the monetary policy action were Jerome H. Powell, Chair;
John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James
Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles.
Voting against the action were Esther L. George and Eric S. Rosengren,
who preferred at this meeting to maintain the target range for the
federal funds rate at 2-1/4 to 2-1/2 percent.

ALERT : Federal Reserve lowers interest rates by 25 basis points, as expected

  
  Analysis
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Highlights of the July 31, 2019 Federal Reserve statement:

  • Rates lowered to 2.00%-2.25% from 2.25%-2.50%, as expected
  • Fed says economic activity is rising at ‘moderate rate’ versus ‘a moderate rate’ prior
  • Fed says labor market ‘remains strong’ versus ‘remains strong’ prior
  • 2 dissents with George and Rosengren dissenting
  • Repeats that business investment has been soft
  • Repeats that ” uncertainties about this outlook remain.”
  • Market-based measures of inflation “remain low” versus “have declined”
  • Repeats that survey based measure of inflation “little changed”
  • Repeats that inflation “running below” 2% target
  • Says cut was “in light of the implications of global developments for the economic outlook as well as muted inflation pressures”
The previous statement said the Fed ” will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion” and also that “uncertainties about this outlook have increased.” The line about “uncertainties about this outlook remain” unchanged.
Guidance is also unchanged with the new statement saying ” will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
The quick view here is that the statement is pretty much identical to the previous one. The market wanted a more-dovish signal. The odds of a Sept cut have fallen to 69% from 78%.
Powell’s press conference is at 2:30 pm ET.

For reference: The June FOMC statement and redline

  
  Analysis

The Federal Reserve statement released June 19, 2019:

Information received since the Federal Open Market Committee met in May indicates that the labor market remains strong and that economic activity is rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending appears to have picked up from earlier in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren. Voting against the action was James Bullard, who preferred at this meeting to lower the target range for the federal funds rate by 25 basis points.

Here’s a redline of the same statement and the changes from May 1:

The Federal Reserve statement released June 19, 2019:

OPEC July survey shows lowest output since 2011

  
  Analysis

Reuters survey:

  • July OPEC output 29.42 million barrels per day, down 280K from June
  • Saudi Arabia cuts. Kuwait and UAE pump more
  • Saudi Arabia 9.65mbpd vs 9.8mbpd prior month
  • UAE 3.068mbpd vs 3.046mbpd
  • Iran 2.10mbpd vs 2.15mbpd prior
  • Nigeria 1.80mbpd vs 1.86mbpd
It looks like Nigeria might be falling into line with the OPEC baseline but still has another 60K bpd to go. Saudi Arabia is now producing nearly 1 million barrels per day less than pledged.

‘Mr. Yen’ sees the currency moving slowly towards 100 per dollar

  
  Analysis

Eisuke Sakakibara, a former Japanese vice finance minister and aka ‘Mr. Yen’, spoke to Bloomberg earlier today

  • It’s going to be a difficult for BOJ governor Kuroda
  • Further easing may be necessary and that will be a challenge for the BOJ
  • Sees USD/JPY moving lower slowly towards 100 by year-end or next year
  • If USD/JPY breaks below 100, that is when BOJ would be concerned
  • As that happens, the BOJ should be inclined to introduce further easing policies
  • Yen has strengthened very slowly over the past few years
  • Usually is a taboo for a country head to talk about the currency
  • Relationship between Trump and the Fed has actually improved in the past year
  • Both sides have learned to accommodate one another
  • In order to perform currency intervention, one needs agreement from the other party
  • Yen should strengthen further against the dollar as Trump wants a weaker currency
  • Doesn’t see the Japanese government being too concerned about that for now
  • Doesn’t think that we’re in the early days of a currency war
Sakakibara earned his name as ‘Mr. Yen’ during the 90’s as he navigated the currency through the Asian financial crisis.
He gave a very candid take during the interview above as well by speaking about how he dealt with Larry Summers when performing currency interventions during that decade.
I reckon the same rules may not apply any more but just something to be mindful about if we ever do reach that stage over the next few years.
His insight on the BOJ and Japanese government stance is also interesting as he sees the 100 level in USD/JPY being the key threshold in which action will then be taken.

Eurostoxx futures +0.2% in early European trading

  
Analysis, Global Indices

Mild positive tones observed in early trades

  • German DAX futures +0.2%
  • French CAC 40 futures +0.4%
  • UK FTSE futures +0.1%
This is more reflective of US equity futures which are up by about 0.2% on the day as well. Sentiment is mostly buoyed by solid Apple earnings yesterday after the closing bell but all eyes will be on the Fed today for further direction.
USD/JPY holds more steady at 108.58 currently, sitting in a narrow 15 pips range so far today.

Nikkei 225 closes lower by 0.87% at 21,521.53

  
Analysis, Global Indices

Trade concerns weigh on Asian equities ahead of the Fed

Nikkei 31-07

The rhetoric by Trump overnight isn’t helping with sentiment in equities on the day with Asian stocks mostly slumping as trade talks continue in Shanghai today.

Trump’s remarks basically cemented already low expectations to be even lower and that isn’t helping with the mood in Asian trading. The Hang Seng is down by 1.3% while the Shanghai Composite is down by 0.5% currently.
US and European futures are a little bit more upbeat, buoyed by more solid Apple earnings after the bell yesterday. That displays more mixed sentiment in markets ahead of the Fed decision later on in the day.

North Korean launch earlier Wednesday was two short range ballistic missiles

  
Analysis, Politics

According to ABC news citing US officials

the North Korean launch early Wednesday was two short range ballistic missiles. This is according to US officials.

The projectiles flow 240 – 330 km according to Yonhap news. They add:
  • projectiles launched by North Korea were different type from previous weapons
The Japan defense minister said that if the North Korean launch was “ballistic missiles”, that would violate UN resolutions and be very regrettable.
I am not not sure if the “short range ballistice missiles” are in violation (i.e., is it only long range ballistic missiles).  In any case, Japan is never comfortable with North Korea firing anything over or near their country.
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