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Previewing next week’s critical Federal Open Market Committee (FOMC) meeting, “the US Fed is expected to cut rates for a third time at their policy meeting on 30 October,” said ABN AMRO chief economist Han de Jong. “We are forecasting a fourth cut in December, but our conviction level has fallen a little.”

Key quotes

“The Fed has explained the cuts as ‘insurance’ against an undesirable weakening of the economy. Economic data have generally shown some weakening, but not excessively so. In addition, one can wonder how much insurance one requires. Whether or not there will be a fourth cut this year in December will depend on the dataflow between now and then.”

“US durable goods orders fell 1.1% mom in September after a rise of 0.3% in the previous month. Capital good orders, excluding defence and aircraft dropped 0.5% mom after a 0.6% drop in the previous month. The durable goods report demonstrates that companies’ appetite for capital spending continues to weaken. Shipments of non-defence capital goods, ex-air in absolute terms reached a peak in May this year and have since fallen.”

“The fall has not been huge, merely some 1.5%, but it is in line with our expectations. On a year on year basis, the pace of growth has eased from around 10% two years ago to just over 1%. Capital spending is weakening as the effects of the December 2017 tax reform is wearing off; because of the China-US conflict; and probably also because of the GM strike which includes some 50,000 workers who have been on strike since mid-September.”