Investors saw a raft of interest-rate cuts during July, as central banks sought to address slowing economic growth and subdued inflationary pressures. The US Federal Reserve cut its key federal funds rate for the first time in over a decade during the month; other central banks that cut interest rates included Australia, South Korea, Brazil, South Africa, and Turkey.
- The US federal funds rate rose by 50bp to a range of 2-2.5%
- The ECB and BoJ stand ready to implement monetary easing measures when necessary
- The White House agreed a deal with Congress over the debt ceiling
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Investors saw a raft of interest-rate cuts during July, as central banks – led by the US Federal Reserve (Fed) – sought to address slowing economic growth and subdued inflationary pressures. The Fed cut its key federal funds rate for the first time in over a decade during the month, reducing it by 0.25 percentage points to a range of 2% to 2.5%. Other central banks that cut interest rates included Australia, South Korea, Brazil, South Africa, and Turkey.
“The IMF urged world leaders to reduce tensions relating to trade and technology”
While the European Central Bank (ECB) and the Bank of Japan (BoJ) did not implement monetary easing measures in July, policymakers at both central banks made it quite clear that they were ready to do so when necessary.
Over July as a whole, the benchmark US Treasury bond yield remained broadly flat, edging from 1.99% to 2.03%. Meanwhile, the benchmark German Government bond yield fell from -0.40% to -0.52% during the month, and the French benchmark bond yield declined from -0.39% to -0.51%.
Ratings momentum for western European sovereign debt has stabilised this year, according to according to credit ratings agency Fitch, which has Austria, Finland, and Portugal on a “positive” outlook, and Italy and San Marino on a “negative” outlook. Although the economic outlook for the eurozone remains weak, Fitch believes the region will avoid recession; low interest rates and further quantitative easing measures will provide support for highly indebted sovereigns.
Credit ratings agency Standard & Poor’s (S&P) believes that this shift to a “more relaxed” monetary stance will continue to provide support for sovereign creditworthiness. Over the first half of 2019, S&P has found that positive ratings actions and outlook revisions have outnumbered negative actions in Europe and Asia Pacific. In the US, the news that the White House had agreed a deal with Congress over a two-year Budget and debt ceiling helped to reduce short-term political uncertainties. Over the second half of the year, S&P regards geopolitical and trade disputes as the principal risks to global sovereign ratings, alongside domestic political dynamics and rising levels of populism that could undermine political cohesion and policy. Elsewhere, the International Monetary Fund (IMF) downgraded its forecast for global economic growth from 3.3% to 3.2% in 2019, and from 3.6% to 3.5% in 2020, and urged world leaders to reduce tensions relating to trade and technology.
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