Due to economic slowdown in the U.S. and elsewhere around the world like China and Europe, the Federal Reserve Bank is widely expected to announce a rate cut today, the second in a row. The Fed’s thinking in coming to such a decision and the unavoidable Brexit situation would predictably factor the decisions by other central banks, namely Japan, Indonesia and the Bank of England, which are all due to announce their interest rate decisions on Thursday.
Yields are falling after global bonds rallied in anticipation of the Fed’s rate cut and position taking by traders who are predicting a no-deal Brexit. EU President Jean-Claude Juncker earlier today said the risk of a no-deal Brexit is palpable at this point. The UK’s annual inflation fell below expectations in August, to 1.7 percent, adding to the union’s already precarious situation.
The EU is waiting for UK PM Boris Johnson to deliver written proposals to changes the UK would want to make to the withdrawal agreements. However, as Mr. Johnson is tied up in a three-day legal battle at the Supreme Court, which is trying to decide whether the government’s decision to suspend parliament was lawful, it is not likely he could come up with a robust set of proposals.
On Wednesday, one-day short-term loans backed by Treasury securities in the U.S., known as repos, soared to 10% due to a liquidity squeeze in the money markets that coincided with corporations having to make tax payments. The Fed is expected to add $75bn into the market to respond to the short-term lending crisis. Observers are suggesting the Fed would have to continue to rely on these one-time patches to address structural shortages affecting the money markets.