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You can find the current article at its original source at https://www.theguardian.com/business/live/2019/sep/18/markets-uk-inflation-house-prices-brexit-fed-rate-decision-business-live
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| Markets brace for UK inflation data and Fed rate decision – business live | Markets brace for UK inflation data and Fed rate decision – business live |
| (34 minutes later) | |
| The US repo market is effectively an obscure part of the financial system’s plumbing....which started making alarming clanking noises yesterday. | |
| Reuters has written a handy explanation to this overnight lending market between banks: | |
| The system typically hums along with the interest rate charged on repo deals hovering close to the Fed’s benchmark overnight rate, currently set in a range of 2.00% to 2.25%. That rate is expected to be cut by a quarter percentage point on Wednesday. | |
| But sometimes, investors get fearful of lending, as seen during the global credit crisis, or at other times there are just not enough reserves or cash in the system to lend out, as appeared to be the case this week. And that can cause a squeeze on the market and send borrowing costs zooming higher. | |
| But when investors get fearful of lending, as seen during the global credit crisis, or when there are just not enough reserves or cash in the system to lend out, it sends the repo rate soaring above the Fed Funds rate [to 10% yesterday]. | |
| Everything you need to know about the repo market but were too afraid/couldn’t be bothered to ask...https://t.co/ejjnfgtusn | |
| It’s never good to see banks short of cash. | It’s never good to see banks short of cash. |
| But yesterday, the cost of overnight borrowing spiked alarmingly, in a sign that financial institutions were struggling to get their hands on dollars. | But yesterday, the cost of overnight borrowing spiked alarmingly, in a sign that financial institutions were struggling to get their hands on dollars. |
| This overnight ‘repo rate’ briefly hit 10% -- an extremely worrying sign -- before falling back after the Federal Reserve raced to inject more money into the system. | This overnight ‘repo rate’ briefly hit 10% -- an extremely worrying sign -- before falling back after the Federal Reserve raced to inject more money into the system. |
| US overnight repo rate jumps to 10%, highest in years. pic.twitter.com/axRT1hRLGq | US overnight repo rate jumps to 10%, highest in years. pic.twitter.com/axRT1hRLGq |
| The FT explains: | The FT explains: |
| Repos are vital to the financial system because they give companies access to cash overnight using US Treasuries as collateral. | Repos are vital to the financial system because they give companies access to cash overnight using US Treasuries as collateral. |
| Ashish Shah, co-chief investment officer for fixed income at Goldman Sachs Asset Management, described the abrupt tightening of the US money market as a “big deal”. | Ashish Shah, co-chief investment officer for fixed income at Goldman Sachs Asset Management, described the abrupt tightening of the US money market as a “big deal”. |
| Similar spikes were during the financial crisis in 2008, when investors panicked that some banks could be in serious financial trouble (as many were!). | Similar spikes were during the financial crisis in 2008, when investors panicked that some banks could be in serious financial trouble (as many were!). |
| Yesterday’s move seems to be due to a temporary lack of dollars, as banks settle tax bills or pay for recent bond purchases. | Yesterday’s move seems to be due to a temporary lack of dollars, as banks settle tax bills or pay for recent bond purchases. |
| But still, it’s not a great sign, so the Fed could announce further measure to support liquidity later today. | But still, it’s not a great sign, so the Fed could announce further measure to support liquidity later today. |
| Dramatic moves in the money mkt that led to US Central bank shunting $53bn into the system on Tue show that the unexpected can still occur, even in an era of tight bank regulation & relative fin stability. It looked like banks were suddenly short of cash. https://t.co/Dcnof1GlgJ pic.twitter.com/6noMgEgAlZ | Dramatic moves in the money mkt that led to US Central bank shunting $53bn into the system on Tue show that the unexpected can still occur, even in an era of tight bank regulation & relative fin stability. It looked like banks were suddenly short of cash. https://t.co/Dcnof1GlgJ pic.twitter.com/6noMgEgAlZ |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| Two issues dominate the City today – August’s UK inflation data, and a likely US interest rate cut. | Two issues dominate the City today – August’s UK inflation data, and a likely US interest rate cut. |
| Following a heavy barrage of criticism from president Trump, the Federal Reserve seems certain to cut interest rates at the end of its policy meeting today. This would be the second rate cut in under two month. | Following a heavy barrage of criticism from president Trump, the Federal Reserve seems certain to cut interest rates at the end of its policy meeting today. This would be the second rate cut in under two month. |
| The Fed will probably lower borrowing costs by a quarter-point, from 2% to 1.75%. It could cite the global slowdown, the impact of the trade war with China, Brexit, and even the latest geopolitical uncertainty in the Middle East. | The Fed will probably lower borrowing costs by a quarter-point, from 2% to 1.75%. It could cite the global slowdown, the impact of the trade war with China, Brexit, and even the latest geopolitical uncertainty in the Middle East. |
| But it’s a difficult decision. Some US economic data has weakened recently – the factory PMI went into contraction last month for the first time in a decade. | But it’s a difficult decision. Some US economic data has weakened recently – the factory PMI went into contraction last month for the first time in a decade. |
| But other indicators, such as retail sales, look strong -- so the Fed may dampen expectations of further rate cuts soon. | But other indicators, such as retail sales, look strong -- so the Fed may dampen expectations of further rate cuts soon. |
| Trump has already savaged the Fed – calling them “boneheads” for not lowering interest rates faster. On Monday he claimed that America’s top central bankers “don’t have a clue” – which I’m sure went down well at the Fed.... | Trump has already savaged the Fed – calling them “boneheads” for not lowering interest rates faster. On Monday he claimed that America’s top central bankers “don’t have a clue” – which I’m sure went down well at the Fed.... |
| ...The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries. They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus! | ...The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries. They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus! |
| Before the Fed fireworks, we find out how the cost of living changed in Britain last month. | Before the Fed fireworks, we find out how the cost of living changed in Britain last month. |
| Economists predict that Britain’s inflation rate probably dropped below the government’s 2% target in August, bringing some relief to households. That would mean real wages are still growing. | Economists predict that Britain’s inflation rate probably dropped below the government’s 2% target in August, bringing some relief to households. That would mean real wages are still growing. |
| However, the recent slump in the pound to a three-year low is likely to push inflation higher in the coming months. | However, the recent slump in the pound to a three-year low is likely to push inflation higher in the coming months. |
| The Office for National Statistics will also release new UK house price data, which is likely to confirm that fears of a no-deal Brexit are hitting the economy. | The Office for National Statistics will also release new UK house price data, which is likely to confirm that fears of a no-deal Brexit are hitting the economy. |
| It’s possible that house price inflation has hit a new seven year low. Last month, we learned that prices were rising at the weakest rate since 2012, with prices falling in London, the South East and the South West. | It’s possible that house price inflation has hit a new seven year low. Last month, we learned that prices were rising at the weakest rate since 2012, with prices falling in London, the South East and the South West. |
| Investors will also be eyeing events in the Gulf. The markets are calmer, after Saudi Arabia said yesterday that its oil supplies would be fully restored by the end of September. | Investors will also be eyeing events in the Gulf. The markets are calmer, after Saudi Arabia said yesterday that its oil supplies would be fully restored by the end of September. |
| Brent crude has fallen back to $64.50, so still some way above the $60/barrel levels last week, before the weekend attack on its production facilities. Any sign of military action against Iran could surely push prices higher again. | Brent crude has fallen back to $64.50, so still some way above the $60/barrel levels last week, before the weekend attack on its production facilities. Any sign of military action against Iran could surely push prices higher again. |
| The agenda | The agenda |
| 9.30am BST: UK inflation data for August. CPI expected to drop to +1.9%, from +2.1% | 9.30am BST: UK inflation data for August. CPI expected to drop to +1.9%, from +2.1% |
| 9.30am BST: UK house prices for July. Annual price rises expected to fall to +0.6%, from 0.9% | 9.30am BST: UK house prices for July. Annual price rises expected to fall to +0.6%, from 0.9% |
| 3.30pm BST: US weekly oil inventories | 3.30pm BST: US weekly oil inventories |
| 7pm BST: US Federal Reserve interest rate decision | 7pm BST: US Federal Reserve interest rate decision |
| 7.30pm BST: Fed chair Jerome Powell’s press conference | 7.30pm BST: Fed chair Jerome Powell’s press conference |