Share Appians news

  • The “jockeying” for EU positions seems to have come to a temporary halt with the most important appointment from a market perspective being that of Christine Lagarde as Mario Draghi’s replacement as the head of the ECB. Lagarde’s professional training is that of a lawyer however, she has been head of the IMF for the last 8 years and prior to that she was Frances Finance Minister. Her political skills may be highly beneficial if the ECB is required to restart unconventional monetary policy. With her lack of economic and direct market experience she may become very reliant on the ECBs Chief Economist, Philip Lane.
  • Donald Trump’s criticism of the Federal Reserve continues unabated. It is Trumps belief that the Federal Reserve is restricting US growth and equity market gains via their monetary policy actions. Trump has nominated Christopher Waller and Judy Shelton for seats on the Fed board. The former is perceived as intellectually and professionally qualified, the later less so. Both are viewed as being in favour of interest rate cuts, the most important criteria for Trump it seems ahead of the Presidential election.
  • Employment data from the US would suggest that the Fed does not have to take an aggressive position with regards monetary policy actions at their end of July meeting. An unemployment rate of 3.7% and wage growth of 3.1% y/y points to a robust economy. Any cut in interest rates would be seen as a precautionary course of action by the Fed and would hopefully assist in raising levels of domestic inflation.
  • UK PMI for the manufacturing sector (see chart) disappointed as Brexit begins to negatively impact the economy. Up until this point, a benevolent Bank of England (low interest rates), a depreciated currency, membership of the EU, a global economy that was growing at a healthy pace and resilient consumer spending lessened the worst economic consequences of Brexit. However, slowing global growth and weaker corporate investment will have an impact on monetary policy and possibly more acutely on the political environment.