US Rate Cut in three weeks a Racing Certainty

In Summary

• US Core CPI is at 2.1%, Unemployment is at 3.7%, GDP growth at 2.4%, Consumer Credit is growing at +5% annualised and US Stock Markets have punched clean through to Fresh All Time Highs.

• In fact, it is being reported that Chinese Journalists have been proscribed from comparing the US and Chinese Stock Markets.  This is indeed a quite incredible moment in monetary policy making where the markets have led Policy Makers by the nose into a situation of ‘’Voodoo Economics’’ plain and simple.

Nairobi security exchange chief executive Geoffrey Odundo observing the daily tradings at the NSE headquarter
Nairobi security exchange chief executive Geoffrey Odundo observing the daily tradings at the NSE headquarter
Image: ENOS TECHE

It is now the received market wisdom that a US rate cut in July is now all but certain. In fact the Market in its wisdom is now pricing in 4 rate cuts through 2020. Once upon a time, The Markets were characterised as ‘’Bond Vigilantes’’ and in an extraordinary Volte-Face the Bond Vigilantes have morphed into Pussy Cats. US Core CPI is at 2.1%, Unemployment is at 3.7%, GDP growth at 2.4%, Consumer Credit is growing at +5% annualised and US Stock Markets have punched clean through to Fresh All Time Highs.

In fact, it is being reported that Chinese Journalists have been proscribed from comparing the US and Chinese Stock Markets.  This is indeed a quite incredible moment in monetary policy making where the markets have led Policy Makers by the nose into a situation of ‘’Voodoo Economics’’ plain and simple. The Violence of the Financial Repression has forced interest rates deeper into negative territory in many parts of the World and spilled over into Frontier markets where Kenya’s Eurobonds have served up a mouth-watering 20% gain in the first Half.

The Impulse has been so violent it has overwhelmed just about every other calculation. President Trump has been bashing the Federal Reserve Chairman and at least did not summarily dismiss him like Reccip Tayyip Erdogan summarily dismissed his Central Bank Chief a few short days ago but the net effect is the same, The Populists are now in charge, Central Bankers are now doing the bidding of their ‘’Leaders’’ and Erdoganomics [where if Trump lays sanctions on Turkey for the purchase of the Russian S-400 Missile Defence Syste, the economy could crumble like a stale biscuit] might well be the Precursor for where this all ends up. The ‘’Parrot’’ is as dead as it was in the Monte Python sketch

Mr. Praline: Never mind that, my lad. I wish to complain about this parrot what I purchased not half an hour ago from this very boutique.

Owner: Oh yes, the, uh, the Norwegian Blue...What’s,uh...What’s wrong with it?

Mr. Praline: I’ll tell you what’s wrong with it, my lad. ‘E’s dead, that’s what’s wrong with it!

Owner: No, no, ‘e’s uh,...he’s resting.

Mr. Praline: Look, matey, I know a dead parrot when I see one, and I’m looking at one right now.

Owner: No no he’s not dead, he’s, he’s restin’! Remarkable bird, the Norwegian Blue, idn’it, ay? Beautiful plumage!

Mr. Praline: The plumage don’t enter into it. It’s stone dead.

Owner: Nononono, no, no! ‘E’s resting!

Mr. Praline: All right then, if he’s restin’, I’ll wake him up! (shouting at the cage) ‘Ello, Mister Polly Parrot! I’ve got a lovely fresh cuttle fish for you if you show...

(owner hits the cage)

Owner: There, he moved!

Mr. Praline: No, he didn’t, that was you hitting the cage!

Owner: I never!!

Mr. Praline: Yes, you did!

Owner: I never, never did anything...

Specifically, with respect to the United States, stoking up the Fire with rate cuts is a very dangerous situation because according to my calculations, the FED will need to be raising rates into the Election, something that will turn Trump apoplectic I am sure.

Further afield and Interestingly. Singapore has been caught up in the US China Trade War cross fire. Gross domestic product in the export-reliant city state shrank an annualized 3.4% in the second quarter from the previous three months, the biggest decline since 2012. Singapore is an outward facing Economy [unlike the US which is much more inward facing] and therefore this slowdown funk was predicted and predictable. Staying in that Part of the World Hu Xijin [who tweets Xi Jinping’s thoughts in real time - a level of Freedom that no Chinese Journalist or Media has] has been expressing his unhappiness about developments in Taiwan.

‘’US-Taiwan ties breaching previous restrictions seems to be the trend. China increasing military pressure on Taiwan to suppress secessionists will also be a trend.These two trends will mutually provoke and confront, becoming top risk that could trigger military clash in TW Strait’’ tweeted.

The Taiwan Strait is a part of the Geopolitical Hot Spot of Straits which also includes the Strait of Hormuz where last week according to a UK Government Spokesman

“Three Iranian vessels attempted to impede the passage of a commercial vessel, British Heritage, through the Strait of Hormuz HMS Montrose was forced to position herself between the Iranian vessels and British Heritage and issue verbal warnings to the Iranian vessels, which then turned away.”

Its interesting how these Global and geo-economic chokepoints are flaring.

The UAE’s MBZ has bailed out on MBS’ Yemen war where the Kingdom sure is bleeding the Houthis but is bleeding in return. How MBS will extract the Kingdom from this unwinnable War is as much a mystery as is the Orb that appeared in the Painting Salvatori Mundi [a Painting that MBS bought for $550m] and in Trump’s first visit to the Kingdom.

We might yearn for President John Magufuli’s more simple World. He urged Tanzania’s women to ‘set [their] ovaries free’ to have more babies to boost the economy.

Aly-Khan is a financial analyst