/Posthaste: The darkest part of a dire forecast, Fed’s hawkish cut — and repo madness Day 3

Posthaste: The darkest part of a dire forecast, Fed’s hawkish cut — and repo madness Day 3


Good morning!

A grim warning from the world’s economic watchdog to start off the morning. The Organisation for Economic Cooperation and Development cut almost all the economic forecasts it made four months ago, and now sees global growth this year at a mere 2.9 per cent, the weakest since the financial crisis. The OECD blames the trade war and its protectionist policies. The trade growth that has driven the recovery over the past decade has fallen from 5% in 2017 to negative territory. But perhaps the darkest part of the forecast is if governments don’t act, we risk falling into a new era of lasting low-growth. “What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships,” OECD chief economist Laurence Boone told Reuters. “The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations.” Let’s hope someone is listening.

Jerome Powell took a blast yesterday when Donald Trump tweeted that the Fed and its chairman had ‘no ‘guts,’ no sense, no vision!” after the central bank cut rates by a quarter point. Clearly the President expected more. More may be coming, but probably not a lot more, say economists. BMO deputy chief economist Michael Gregory for the time being sees another cut in October. “If the economy continues to weaken (which we judge it will) and if trade policy continues to stoke uncertainty (which we also judge it will), another rate cut this year is probable,” he wrote after the decision. RBC also expects another cut this year, and Capital Economics sees a cut in December and then a move to the side lines. CIBC expects one more cut this year and a pause through 2020, but noted that the Fed avoided promising a lot more. “If a central bank can seems a bit hawkish on the very day they announce a rate cut, the Fed may have managed to do just that, in part due to the divisions among FOMC members about what lies ahead,” wrote chief economist Avery Shenfeld.

For the third day in row the Federal reserve is stepping in to prevent U.S. money market rates from spiking, pumping in another $75 billion liquidity. On Tuesday, panic set in after repo rates jumped to 10%, four times where it was last week. This is the Fed’s first intervention since the financial crisis and Powell made it clear yesterday that it will keep doing repo operations if that’s what it takes to get markets back on track. Get the full story on the money market’s wild ride here.

Here’s what’s you need to know this morning:

  • Bank of England holds interest rate any 0.75%
  • Mitsubishi hosts an event in Montreal, likely tied to its purchase of Bombardier’s CRJ regional jet program
  • Forum and press conference hosted by Green Jobs Oshawa on potential for electric cars at GM’s Oshawa plant
  • Manitoba Agriculture Minister Ralph Eichler speaks at the Manitoba Protein Summit in Winnipeg
  • The Business Council of B.C. launches the inaugural B.C. Prosperity Index, an analysis of the province’s overall well-being and how it ranks compared to competing Canadian and international jurisdictions
  • Today’s data: Statistics Canada EI report, Teranet/National Bank home price index, U.S. existing home sales

Canadians got poorer for the first time in almost a decade, recent research has shown. The new study by Environics Analytics reports that the average Canadian’s net worth dropped by $7,594 or 1.1 per cent to $678,792 last year. The biggest knocks to our wealth were a stock market correction late in the year, higher debt levels and a decline in pension values. The good news is things are looking up this year. The stock market has recovered (knock wood), housing prices are rebounding and interest rates remain low.

 

— Please send your news, comments and stories to pheaven@postmedia.com. — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg

 

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