Cambridge Weekly Update – 24th September 2019

Diverging economic trends – catalyst for trade war resolution?

We know from conversations with some of our portfolio investors and financial advisors that the investing UK public is currently almost entirely focused on every twist and turn of the Brexit drama. However, with the ‘back-stops’ which parliament has forced upon the Brexit-determined Johnson government, there is in our view still only a fairly low probability that the ongoing process will lead to an economically disruptive no-deal withdrawal scenario. Until matters become clearer on that front, global developments are therefore far more relevant for professional investors

2019’s half-day oil shudder

The attack on Saudi Arabia’s largest crude oil processing plant last weekend has understandably caused quite a stir. On Saturday, a series of missiles hit the Abquaiq processing centre – which prepares almost 70% of Saudi Arabia’s oil for export – knocking out a key piece of the Kingdom’s production.

Don’t fear the Repo?

The timing could not have been worse for the Federal Reserve. Just as the US central bank was about to assuage capital markets by cutting interest rates once more, they seemed to lose control of a key part of the financial system. Earlier this week, US money markets were shocked by a surge in repo rates – the interest rate for short-term interbank lending (comparable to what LIBOR used to be) – after financial institutions came up short of cash. The situation forced the Fed to inject an unusually large amount of short term liquidity into the financial system via an “open market operation” to calm things down.

Read the full commentary here