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THE DAILY MACRO BRIEF: ECB and FED rate cuts, Confidence shock, No-deal Brexit, Libra...

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07/12/2019 | 07:00am EDT

The FED and the ECB are preparing to lower their interest rates. The Sino-American conflict continues. Are the British ready for a no-deal Brexit? The Facebook Libra is panicking international regulators.

Dovish' turn, but no clear indications. Yesterday, the ECB published the minutes of its last monetary policy meeting on June 6. As a reminder, it had decided to leave its interest rates unchanged at 0.00% (refi rate), 0.25% (marginal lending facility) and -0.40% (deposit facility), at least until the first half of 2020. Draghi even indicated that further rate cuts were "part of the tools envisaged" in order to revitalize growth in the euro zone. Yesterday, the ECB confirmed the possibility of a rate cut. The Governing Council had also decided to continue to reinvest in full the principal amount of maturing securities purchased under the asset repurchase program and then to raise by 10 basis points the interest rate on quarterly long-term refinancing operations (TLTRO III). ECB decision-makers were rather skeptical about the approach to be taken.

Sino-American trade tensions persist and the FED plans to lower its rates. FED President Jerome Powell reiterated the FED's intention to lower rates soon due to the "confidence shock" of industrialists, who are suffering from trade tensions. For its part, China yesterday said that the trade war could "certainly" be resolved through a balanced dialogue between Beijing and Washington. But this is not yet a foregone conclusion: Trump warned last week that a 50/50 trade agreement was not an option. In addition, he accused China yesterday of not buying American agricultural products when it had promised to do so.

The BoE is not afraid of a "no deal Brexit". As the odds of a disorderly Brexit increase, Bank of England Governor Mark Carney has tried to reassure that the British financial system is ready to deal with a Brexit without agreement, with "most risks" having been "mitigated".

The Libra under surveillance. Facebook's crypto-currency, due in 2020, is cause for concern. Jerome Powell said that the review of the Libra project - which is on the way to becoming a "systemically important currency" - will take more than a year, subject to "careful and careful risk assessment". At the same time, Donald Trump criticized crypto-currencies and asked companies to comply with various regulations if they want to become banks. On the Old Continent, Libra also raises concerns: "the more we investigate this project, the more serious and potentially questionable we, the regulatory community, have become", said François Villeroy de Galhau, Governor of the Banque de France.

In other news. Brazilian President Jair Bolsonaro plans to appoint his youngest son as ambassador to the United States: "Eduardo is a friend of the children of Trump, he speaks English, Spanish and has a very wide experience in the world". Industrial production increased by 2% in Japan in May, compared to 2.3% the previous month (and expected). Industrialists fear a decline in orders from China. In June, China's trade balance recorded a surplus of $51 billion, exceeding the consensus by $45.2 billion and the previous publication by $41.7 billion. France is the first country to introduce a tax on tech giants, the latter having been adopted yesterday by Parliament. London, in turn, has just unveiled a digital tax bill.

Romain Fournier
© MarketScreener.com 2019
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