Daily Brief – EU Rate Cut

EU Rate Cut

With EU core inflation now reported to be 1.7% led by both France with inflation of 1.5.% and Spain at 1.6%, expectations are now running high for an ECB rate cut of 0.25% on October 17. The EU inflation target is 2% so on that measure alone the market is right in its view despite Mme Lagarde the ECB President not expecting EU inflation to break sustainably through 2% until next year.

GBP/EUR 1.1980.

US Debt

With US publicly held debt standing at USD 28 trillion, it would be reasonable to expect both Presidential candidates to burnish their credentials with stating how they propose to reduce it. To put this figure in perspective it is almost the same size as the US economy. In fact neither candidate has addressed US debt other than to make a very small number of passing references to it. Nor do either candidate’s policy picks-in as far as they have been made clear- suggest that reduction is on the cards; rather it would appear as if the US debt position will instead increase further. The market will support that at current pricing until one day it does not, at which time that will be bad for the entire global economy. 

USD/JPY 142.16.

US Interest Rates

In case readers have become confused about where the path of US interest rates lies, the current and majority view is for a further 50 basis point cut in November and for a 25 basis point cut in December. The picture into 2025 is for US interest rates to level out at around 3.25% which is perceived as being the neutral rate. That’s the plan. As regards the imperative for the US Treasury it is to cut the cost of servicing that USD 28 trillion debt mountain described above.

EUR/USD 1.1165.

Baltic Defence Line

In a sign of the times Estonia, Latvia and Lithuania have requested EU funding to bolster their borders with defence measures including arms and bunkers to deter Russia. Poland has its own Eastern Shield with the same objective against Belarus and Russia. Costs are estimated to be €2.3 billion for Poland, €300 million for Lithuania and €60 million for Estonia. Latvia is unspecified. However it seems plans are at an early stage since for the EU to secure its northern border for a total cost of less than €3 billion sounds suspiciously low- and wrong.

GBP/USD 1.3375.

Foreign Affair

This day in 1989 Tina Turner’s album of the same name as the song  went straight in at Number 1 in the UK but surprisingly it only managed to reach Number 31 in the USA. Never mind TT made out like a bandit with both the album and the song.

A one in a million chance
You know the moment that you crossed over the line
A casual glance
No one has to read between the lines

In the south of France, it was springtime
Special feelings come alive
There’s romance in the air, so they say
Love could be a small cafe away

Love is a piece of cake
And making love is all there is to eat
But it’s a heart out of a lamb
When you start to feel forever in a kiss

But you must remember there’s no point of refuge
You only have a part in a lover’s play
And you could be the one left in the dark
If someone takes a shortcut to your heart

And all too soon, you’re touching for the last time
No one has to tell you how it is
It’s just a memory two people share
File it under foreign affairs, oh

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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