U.S. and Mexico Reach Deal

June 10, 2019 Chatham Financial

Prior Week Summary

U.S. equity markets ended the week in positive territory and the global bond rally continued as dovish sentiment offered from U.S. and E.U. central bank officials and U.S./Mexico trade developments dominated headlines and drove markets. Federal Reserve Chairman Jerome Powell fueled expectations of a rate cut while speaking at a conference at the Chicago Fed on Tuesday saying,“We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective.” A number of Federal Reserve officials, notably Vice Chairman Richard Clarida and St. Louis Fed President James Bullard, expressed a similar openness to accommodative monetary policy throughout the week. The Fed Funds Futures market is forecasting a nearly 80% chance for a rate cut at the July FOMC meeting, up from a 48% probability at the end of May.

The Trump administration suspended its threat to levy tariffs on Mexican goods after U.S. and Mexican officials agreed to a deal in which Mexico would step up their efforts to stem the flow of illegal immigration through the U.S./Mexico border. Detailed in a joint declaration released on Friday, Mexico agreed to deploy “its National Guard throughout Mexico” and to offer “jobs, healthcare, and education” to asylum seekers while the U.S. processes their requests. In U.S. economic news, the May employment report was largely negative with the U.S. economy adding 75,000 jobs, far lower than the 175,000 consensus estimate. The unemployment rate held steady at 3.6%.

The Look Forward

Market participants will be looking forward to the release of updated figures on CPI, PPI, retail sales and consumer sentiment, among others.

Rates Snapshot

Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.

 

Market Implied Policy Path (Overnight Indexed Swap Rates)

Source: Chatham Financial

 

Fixed Income Snapshot

Source: Bloomberg Finance L.P.

 


Disclosures

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit https://www.chathamfinancial.com/legal-notices/.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 19-0163

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