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LGT Navigator: Fed currency guardians divided over further course

October 10, 2019

The most recent Fed meeting in September was dominated by the US-Chinese trade dispute, according to the minutes published yesterday. However, Fed members have different views on its consequences for the US economy.

While some currency guardians point to increasing risks of recession, others do not see the trade conflict and the associated uncertainties as a threat to an economic downturn in the US. According to the protocol, however, there is unanimous agreement among the Fed's leadership that it is necessary to talk about expanding its own balance sheet. US Federal Reserve Chairman Jerome Powell announced on Tuesday evening at an economic conference in Denver that he wanted to take action against the tensions on the US money market by buying securities. He has also signaled a further interest rate cut this year. Measures to increase the supply of liquidity will soon be initiated, Powell said. In this context, the head of the central bank hinted at the purchase of money market paper (T-Bills), i.e. securities with short maturities.

Powell made it clear that the purchase of short-term money market paper was not a return to the government bond purchasing program. Rather, the measure is aimed at preventing tensions on the US money market. Most recently, American banks had problems in handling day-to-day business. At times, high interest rates had to be paid for the funds needed on a daily basis. The US Federal Reserve reacted to this and is currently making high double-digit billions available to banks every day.

In addition, Powell also provided new indications on the further development of interest rates in the USA. The central banker compared the current situation in the USA with the situation in the 1990s. At that time, the Fed had lowered key interest rates three times in order to stabilize the economic upswing. Observers see Powell's statements as an indication of a third rate cut in 2019.

Billion-dollar fine burdens Johnson & Johnson

Shares of Johnson & Johnson (J&J) fell -1.8% in pre-IPO trading on Wednesday when it was announced that the US company was sentenced on Tuesday to eight billion US dollars in damages. The billion-dollar fine was imposed because J&J had failed to give adequate warning of the side effects of Risperdol, a drug used to treat mental illness. The company said it was confident that the ruling would be overturned. Risperdol was approved in 1993 for the treatment of schizophrenia and bipolar disorder in adults. The 26-year-old plaintiff received the drug in 2003. He explained that he had grown breasts after taking the drug. Doctors in the USA are allowed to prescribe medication if they consider it necessary. However, companies are only allowed to market their products for approved cases. The plaintiffs allege that J&J also advertised Risperdol for unauthorized use in children.

OECD proposes higher taxation of large Internet companies

The OECD, the industrialized nations' organization, has presented proposals for reforming the international taxation of large corporations. According to the proposals, governments would have more opportunities to tax Internet companies more heavily. However, the details for an exact formula for the calculation still has to be negotiated. The strength of support for the OECD's proposals is likely to be demonstrated next week at a meeting of the finance ministers of the 20 leading industrial and emerging countries in Washington. France's Finance Minister Bruno Le Maire already welcomed the proposals as "very good". The background to the OECD proposal is the legal but often criticized practices of large internet giants such as Google and Facebook, which often use low-tax countries to lower their total tax burden. They book their profits there even though their customers are domiciled in other countries. More than 130 countries have therefore asked the OECD for reform proposals. Pressure is increasing: countries like France have already introduced their own digital taxes, which the US is heavily critical of. OECD Secretary General Angel Gurria said that if there were no global solution in 2020, more and more countries would go their own way. "We must not allow this to happen," Gurria said.

Great Britain's tough choice: delay Brexit or leave the EU without an agreement?

The head of the European Parliament, David Sassoli, said on Wednesday that "no major progress" had been made at the recent Brexit talks and that the UK would now have to apply for a delay in the planned Brexit on 31 October or leave the EU without a regulated agreement. "The European Parliament is of course open to the possibility of extending the deadline if there are concrete objective reasons for doing so," Sassoli told a plenary session of the House. "Requesting an extension of the deadline is the UK's prerogative".

Economic Indicators October 10

MEZ Country Indicator Last
08:00 DE Exports (m/m) -0.89%
08:00 DE Imports (m/m) 0.49%
08:45 FR Industrial Production (y/y) 0.11%
10:00 IT Industrial Production (y/y) -1.80%
10:30 GB Industrial Production (y/y) -0.80%
14:30 US Consumer Prices (y/y) 1.81%
14:30 US Initial Job Claims (thousands) 219.45

Earnings Calendar October 15

Country Corporate Period
US Citigroup Q3
US Goldman Sachs Q3
US Johnson & Johnson Q3
US JPMorgan Chase Q3

 

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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Impressum
Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG
Core Personal Consumption Expenditure
MEZCountryIndicatorLast08:00DERetail Sales (y/y)-1.7%08:45FRConsumer Prices EU Harmonized (y/y)1.4%09:00ESGDP (y/y)2.4%09:55DEUnemployment Rate5.0%11:00EUGDP (y/y)1.2%11:00EUCore Consumer Prices (y/y)1.1%11:00EUUnemployment Rate7.5%11:00ITConsumer Prices EU Harmonized (y/y)0.8%12:00ITGDP (q/q)0.12%14:15USADP Employment Report102k20:00USFederal Funds Target Rate2.5%
08:00DEExports (m/m)-0.89%08:00DEImports (m/m)0.49%08:45FRIndustrial Production (y/y)0.11%10:00ITIndustrial Production (y/y)-1.80%10:30GBIndustrial Production (y/y)-0.80%14:30USConsumer Prices (y/y)1.81%14:30USInitial Job Claims (thousands)219.45