Money, money, money

Posted by: Paul Donovan

09 Oct 2019
  • The Federal Reserve chair (a lawyer, not an economist) has said the Fed will resume US Treasury purchases to expand its balance sheet. This is normal. Central bank balance sheets nearly always rise in nominal currency terms. Demand for cash will rise over time, as an economy expands. A central bank, as monopoly supplier of cash, needs to balance that rise in demand.
  • The minutes of the last Fed policy meeting are due for release. With the Fed quite clearly divided, the nuances of the minutes will assume greater importance for markets.
  • In the interminably tedious EU-UK divorce process, things are getting uninteresting. Tweets are being fired. Latin quotes are being sent out. Markets did not expect a deal to be done, and so should remain indifferent (unless it looks as if a no-deal exit will be introduced in defiance of legislation).
  • Financial markets are obviously focused on this week's US-China trade talks. The US introduced visa bans for some Chinese officials. This is reducing market hopes for a limited deal being done. US inventory data is due today. This specific data release is not a focus, but inventories help gauge how quickly US trade taxes will hit US companies and consumers.