In the event he said nothing earth shattering and although he remains wary of the prospect of tariff induced inflation, ‘shifting risk balances may warrant policy adjustment’ and a 25bp cut in September is expected by the market. Whether he will hang on for his final nine months of tenure remains to be seen but we know his President doesn’t want him to, calling him a ‘moron’ for holding rates at the last meeting. The race to succeed Powell has lined up a fine array of Presidential stooges and therefore the White House is on track to exert fiscal dominance over the Fed potentially forcing cuts. Trump thinks rates should be at 1% to reduce debt costs and stimulate economic activity, this prospect has had the effect of twisting the US Treasury curve steeper. Another kind of dominance has shown itself, if the numbers don’t suit, like weak payroll numbers, sack the messenger, the fate of the head of the Bureau of Labour Statistics.

The pause on higher tariffs on China has been extended to November but new fronts of trade conflict are opening up in areas such as semiconductors. Standard and Poor’s played the game affirming the credit rating of the US due to potential revenues raised by tariffs countering Trump’s enormous tax cuts and spendinging plans.

EU exports to the US have fallen by 10% with Germany the hardest hit as a major exporter. This added to its sluggish economic woes, contracting by 0.3% in the last quarter. However, forward looking PMI’s are encouraging. Low rates and huge government spending will feed through at some point.

The Bank of England delivered another 25bp cut (after a ‘re-vote’) but this might be the last for a while as inflation then printed at 3.8%, an 18 month high. The most uncomfortable data point was service sector inflation (80% of the UK economy) running at 5%. The UK’s fiscal position remains fragile and this continues to reintroduce term premia at the long end of the curve, the 30 year Gilt printing over 5.6%, way above the Truss/Kwarteng spike and a 27 year high.

The summer lull reduced primary market volumes but plenty of new issues still came to market across all currencies, even Sterling, and demand has meant precious little new issue premium. However, all in yields, especially in Sterling, are very attractive. Credit spreads have been very stable although we have seen a little recent widening. 
 

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Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.