Market Update

Once again, the week in equity markets was shaped by the ongoing US/China trade tensions and speculation regarding central bank policies.
On Wednesday (August 22, 2019), the minutes from the Federal Reserve's July meeting were released. While they echoed previous statements by Fed President Jay Powell, stating that the US economy's outlook was positive and the July rate cut was a "mid-cycle adjustment," they notably introduced the term "optionality." This choice of wording, in our view, suggests the Fed is considering the possibility of additional interest rate cuts.
Despite opposition from some Fed policymakers, such as Eric Rosengren and Esther George, who argue against further rate cuts, we interpret these developments as the beginning of an easing cycle. We anticipate the Fed will cut interest rates again during their next two-day monetary policy meeting on September 17 and 18, 2019. This expectation is bolstered by heightened risks since the last "mid-cycle adjustment," including escalated US/China trade tensions, indications of slowing global economic growth in countries like China and Germany, the recent yield curve inversion, and persistent US inflation undershooting the Fed's 2% target.
Additionally, significant clues came from Fed President Jay Powell's dovish remarks at the annual symposium of global central bankers in Jackson Hole, particularly his omission of the phrase "mid-cycle adjustment." Acknowledging the risks to economic growth, Powell stated that the Fed would "act as appropriate to sustain the economic expansion."
Unfortunately, these developments were overshadowed by China's announcement of additional tariffs on US goods amounting to $75 billion, leading to a series of confrontational tweets from President Donald Trump. In response, Trump declared increased tariffs on Chinese goods and urged US companies to leave China. These events led to a sharp decline in global equity markets, erasing the gains made earlier in the week.