(23 AUGUST 2019) DAILY MARKET BRIEF 2：Fed minutes show a split, all eyes on Jackson Hole

Minutes from the US Fed's latest rate-setting committee meeting at the end of July showed a split among central bank officials, and the tone was slightly more hawkish than market expected.

Only a couple participants preferred a 50-basis-point cut over the agreed 25bps, while several others were not in favor of a cut at all, the minutes showed.

What's more notable is that those that favored a larger cut did so to better address low inflation rather than because of concerns about a slowing economy, according to UBS Global Research analysts. Still, Fed officials thought a rate cut was warranted based on signs of a deceleration in economic activity in recent quarter, particularly the weak business investment and slowing growth overseas.

In fact, the analysts believe that global growth and risk management, instead of US data, will be the key reasons for another rate cut in September.

"A further weakening in global growth and another round of tariffs announced immediately after the July meeting will have accentuated these concerns in recent weeks," they said.

UBS CIO Global Wealth Management expects the Fed to make three more cuts of 25 basis points each.

"Given the range of views among FOMC members, as long as the yield curve is inverted, the balance is likely to tilt in favor of further cuts," CIO noted.

What happens next is the meeting in Jackson Hole on Friday, when the world's top central bankers will gather and US Fed chair Jay Powell is scheduled to provide opening remarks.

The speech is likely to provide some additional insight into Powell's thoughts on the risks to the economy and the stance of monetary policy.

CIO believes that the combination of muted growth and low interest rates creates a conducive environment for carry strategies. It recently increased the size of its overweight in a basket of high-yielding emerging market currencies (Indonesian rupiah, Indian rupee, and South African rand) against a basket of lower-yielding currencies (Australian, New Zealand, and Taiwanese dollars).

It is also overweight in emerging market sovereign debt, and recommends a variety of dividend strategies in Europe and the US.

BY UBS