Weekly Edge: Central Banks Around The Globe Are Cutting Rates

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Includes: ACWF, ACWI, AIIQ, DGT, DTEC, ESGF, ESGW, FIHD, FLQG, FLQH, GLQ, HDMV, VGFO, VT, WBIL, XMX
by: Invest With An Edge
Summary

The average momentum score for the Sector Benchmark ETFs decreased from 17.27 to -5.64.

Among the Factor Benchmark ETFs, the average factor score decreased from 19.08 to -7.17.

The average Global Benchmark ETF momentum score decreased from 7.09 to -19.73 for the week.

By Ansh Chaudhary

President Trump started Wednesday morning off with a fresh round of tweets calling on the Federal Reserve to cut rates more aggressively. "Our problem is a Federal Reserve that is too proud to admit their mistake of acting too fast and tightening too much (and that I was right!)," Trump said in a Twitter post. The demands came after three other central banks around the world announced rate cuts.

India's central bank revised its GDP growth forecast for the current fiscal year from 7% to 6.9% in their bi-monthly review, reports MarketWatch. It also cut its interest rates for the fourth consecutive time. The bank's monetary policy committee decided to cut rates by 0.35%, and the lending rate now sits at 5.40%.

Crossing over the Bay of Bengal, the Bank of Thailand also cut its rate. The quarter-point decrease was a bit more unexpected, as it was Thailand's first rate cut since 2015, according to CNBC.

New Zealand also surprised with a half-point rate cut. Its benchmark interest rate is now at an all-time low of 1%. According to MarketWatch, the bank is concerned about global trade among other issues. "New Zealand's economy relies on the country selling agricultural goods abroad, in particular milk powder to China, and on tourism. The bank said that the end of a boom in house prices and low business confidence was also suppressing domestic demand," reports MarketWatch. With those items in mind, New Zealand's central bank decided to take precautionary measures with its higher-than-expected rate cut.

All this comes at a key moment. As trade tensions between the U.S. and China escalated in the past week, the economic outlook around the globe has also become bleak. Central banks lower interest rates to boost the economy with increased money supply and, therefore, increased demand. Even as the market expects the Fed to announce an additional rate cut at its September meeting, President Trump continues to complain that the Fed is moving too slowly.

The Fed must remain focused. Currently, about $14 trillion in international government debt offers negative yields, according to Pimco Economic Adviser Joachim Fels. Escalating trade tensions could cause U.S. Treasury rates to slip to below zero, joining parts of Asia and Europe. If this were to occur, another $14 trillion of government debt is estimated to offer negative yields. Parts of Asia and Europe have been struggling with this phenomenon for over a decade, and it has led to low inflation and sluggish growth. Hopefully, we can avoid that fate.

Sectors: The average momentum score for the Sector Benchmark ETFs decreased from 17.27 to -5.64. Momentum decreased for all 11 sectors last week. The momentum score for Communication Services decreased by 40 points, causing it to fall from first to fifth place. Energy remained the laggard after a 31-point decrease in momentum score.

Factors: Among the Factor Benchmark ETFs, the average factor score decreased from 19.08 to -7.17. Momentum decreased in all 12 factors last week. Low Volatility, which posted a 16-point increase in momentum score, overtook Momentum for first place after that factor's momentum score fell by 25 points. High Beta fell to last place after a 43-point decrease in momentum score.

Global: The average Global Benchmark ETF momentum score decreased from 7.09 to -19.73 for the week. Momentum in the global sector decreased in all 11 regions last week. USA remained the top region despite a 26-point decrease in momentum score. China fell to last place after a 42-point decrease in momentum score.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.