Policy discussion in a data vacuum

Daily update

French politicians have been doing politics. This week’s prime minister, Lecornu, has suggested that a majority of national assembly members favor seeking a compromise budget. The suggestion is less fiscal tightening than was originally proposed. French assets are likely to continue to command a risk premium, but the bond market should remain orderly.
In the data desert of the ongoing US government shutdown, the release of the Federal Reserve policy meeting minutes attracted even more attention than normal. There was clearly a range of views—a “cut, cut, cut” view, a “proceed cautiously” view, and even a “do we really need to cut today?” view. Labor market fragility was clearly a concern.
There was a discussion about the Fed’s balance sheet—relevant as quantitative policy might make a difference to the US government’s borrowing costs. Overall, there is nothing to dissuade investors from expecting further US cuts, although the conviction of market views might lessen slightly. The ECB policy meeting account is due, but will attract less market attention.
German August trade data showed weaker exports than expected, but much weaker imports. That is not necessarily a healthy combination (even with positive revisions to past data). EU-US trade tensions are simmering over US resentment of the EU’s regulatory power.