“If I have my health, can pay my bills and have friends I am content”Lauren Bacall

Oil prices settled back as the week has gone by after the Saudi government confirmed that the bulk of the supply disruption would be restored. The tensions in the Middle East will continue as will the threat of further spikes in the oil price. Of all the things to be fearful off, that is high on the list.

The Federal Reserve did announce a rate cut of 25 basis points on Wednesday evening, as expected. The decision was far from unanimous as several members argued for leaving rates where they were. As we have pointed out before, historically it would be unheard-of for the Federal Reserve to be even contemplating a rate cut. With stock markets and unemployment levels where they currently stand. Alongside this the data from the world’s largest economy has shown signs of improvement recently.

The reaction from asset prices was predictable; the dollar weakened slightly as bonds rallied. The price of gold eased slightly as hopes for further cuts in the coming months rescinded. However, with interest rates around the globe remaining where they are or possibly falling further. One can’t see the price of gold falling far and could still rise. We have speculated that the price could easily retest old peaks of 1800 dollars an ounce, while there are 17 trillion dollars of negative-yielding assets trading around the globe. After a period of strength, asset prices, rather as humans do climbing a hill, pause for breath. This may be the case currently for the gold price.

The Bank of England left rates where they are, despite Brexit concerns, inflation rates at a three-year low and weak Q2 GDP data. The rationale for a cut in the UK could be almost more significant than that of our friends across the pond. UK interest rates, rather like the rest of the world, are not going anywhere higher fast as things stand. The Monetary Policy Committee indicated that anything but a Brexit deal with Europe would result in a cut in interest rates. Even if a deal is struck, there is no pressure to raise interest rates. Sterling recovered back above 1.25 against the dollar as Junker made positive comments later in the day.

So, it goes on; monetary policy remains expansive around the globe. The weak data from the Chinese economy in the past month, more monetary stimulus for the region cannot likewise be ruled out.

Lastly, the Federal Reserve has been called into action for the past three days to supply cash into the overnight money market. The rate at which banks lend to each other climbed above the Federal Reserves target. At one point, hitting 10%. The last time the Fed intervened like this was during the financial crisis. Thankfully the reasons for the intervention this time appear more technical than due to fears of another banking crisis.