The FOMC was nearly unanimous in voting for 25bp, the sole member who voted for a 50bp cut was unsurprisingly Trumps new appointee, Governor Miran. Risk assets were cheered by the cut, especially US stock indices which continue to explore new highs. The abundance of liquidity being deployed into equities and credit provides significant support and momentum.

ECB’s Lagarde indicated they were at the end of their cutting cycle and Nagel says the outlook for inflation is ‘very stable’. Less stable is France which was downgraded to A+ with a stable outlook by Fitch citing ‘increased fragmentation and polarisation of domestic politics’ along with rising government debt and an uncertain fiscal outlook (sounds like the UK?), all eyes on Moody’s and S&P, two downgrades becomes an index event. Some Asian Sovereign Wealth Fund’s will likely have to sell or reduce holdings of their debt.

Although headline UK GDP numbers are not inspiring, the services sector has grown 1.5% year on year. The Bank of England held at 4% and as anticipated reduced the pace of Quantitative Tightening from £100Bn to £70bn. The largest reduction looks to be at the long end in an attempt to reduce volatility but the fiscal worries that have pushed 30 year yields to over 5.5% haven’t gone away. Governor Bailey indicated more cuts are on the way but ‘the timing and scale of cuts are more uncertain than before August’ with inflation still printing just shy of 4%. We now have a date for the Budget at the end of November and we look forward to our Chancellor pulling a rabbit out of her hat. In the meantime, recently released government borrowing figures blew out forecasts and we are borrowing the most since the start of the pandemic. Thankfully demand for Gilts remains strong and the recent £14Bn 10 year auction was 10 times oversubscribed.

Credit spreads reached fresh tights amid continued demand and the primary market remains very active with new issues attracting strong order books and pricing well inside initial price indications. China and Russia keep getting closer, politically and economically, and this has led to support for the reintroduction of ‘Panda’ bonds where Russian energy companies issue paper in renminbi to Chinese investors.
 

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