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28/07/2016

KB News Bites: Ball in no-one's court

Copy, paste: The Federal Reserve kept its key interest rate at 0.25-0.50% as expected, but said near-term risks to the US economic outlook had diminished. This has led some to believe that rate hikes may occur in one of the three meetings remaining this year.  However, beyond that slight tilt, the statement was rather bland: the third, fourth and fifth paragraphs were identical to the previous statement. (28/7)

Ball in no one's court: An international court ruling denying Chinese claims in the South China Sea this month appeared at first a humiliating defeat, however, it may possibly become irrelevant. China scored a major diplomatic victory earlier this week when the Association of Southeast Asian Nations (ASEAN) dropped any reference to the decision in a joint statement. In a similar vein, the European Union, occupied by "Brexit" took note of the ruling, but little else. With the US occupied by an election with ideological underpinnings, a major plank of its foreign policy in Asia is under threat. (28/7)

Home run: US home sales in June reached their highest level in over eight years, with the market ablaze due to record low mortgage rates and one of the healthiest economies in the developed world. Sales were up 25.4% from a year ago, with the median price for a new home up 6.1% in that time to $306,700. It helps that mortgages are often fixed for 30 years in the US; currently, a 30-year fixed rate is about 3.6%; 10 years ago it was 6.4%; 30 years ago, it was over 10%. (27/7)

Weale Weale rock you: Martin Weale, one of the most hawkish members of the Bank of England's monetary policy committee, has turned dovish following the sharp drop in the UK's purchasing managers index figures last week. Only a few days ago, Mr. Weale gave a speech urging the BoE to wait “for firmer evidence” before cutting rates or expanding its quantitative easing programme. It appears the PMI figures more than met the criteria. The BoE's next policy meeting in August will be the last for Mr. Weale after six years; few thought he would bow out with a vote to cut rates. (26/7)

Pensive Meagre Intentions: The first proper post-referendum gauge of UK economic activity painted a sordid tale of contraction. Order book cancellations, a lack of new business and the postponement of ongoing projects led the UK’s Composite Purchasing Managers' Index for July to plummet to 47.7, the lowest reading since the financial crisis. The release did not even take into account the construction sector, which looks especially vulnerable. This may simply be an immediate knee-jerk fright, and not a genuine harbinger of a sustained downturn – only time will tell. (25/7)

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