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Mixed Signals

Domestically, economic news is mixed. Unemployment remains at multi-decade lows, and consumer confidence levels are relatively high, despite a recent downtick. However, wage growth and new housing starts have started to show signs of weakness.

Interest Rate Cuts - A Good Thing?

The Fed cut its target range for the federal funds rate by 25bps at its September meeting. The rationale for the cut was global developments and muted U.S. inflation. However, there were conflicting messages from a dovish statement and a more hawkish press conference as to whether these cuts would continue. Chair Powell seemed to reaffirm this cut was still part of a “mid-cycle adjustment” rather than the beginning of a longer rate cutting cycle, but left it up to the economic environment going forward to determine the future path of rates.

Be Careful What You Wish For

The recent talks of an inverted yield curve and negative rates may, on the surface, sound positive as lower long-term rates benefit mortgage holders. But it is worth pointing out that twenty years ago Japan was the pioneer of negative interest rates, and this caused assets to leave the country in search of higher rates - ushering in two decades of stagnant growth.

Energy Markets Losing Steam

Oil prices increased sharply following an attack in September on a Saudi Arabian oil refinery. The disruption impacted around 5% of the world’s daily oil production. While the oil markets initially surged, within days they resumed their multi-month drop.