Another Quarter in the Books

April 1, 2019 Chatham Financial

Prior Week Summary

Capping an end to one of the best quarters in recent memory, U.S. equity markets marched higher last week as investors reacted to U.S.-China trade negotiation developments and dovish sentiment offered by Federal Reserve officials. Members of the U.K. Parliament rejected Prime Minister Theresa May’s Brexit proposal for a third time, increasing the likelihood of a “no-deal” Brexit as the April 12th deadline draws near. Parliament is expected to vote on a number of alternative Brexit proposals on Monday. Separately, Federal Reserve Bank of New York President John Williams reiterated a patient approach to monetary policy, but dismissed ideas that the U.S. is headed for a recession saying, “So, I still see the probability of a recession this year or next year as being not elevated relative to any year.”

U.S. and Chinese officials met in Beijing last week as the two sides worked to find common ground on the oft-reported sticking points regarding intellectual property treatment and a policy enforcement mechanism. Emphasizing that Washington feels no pressure to quickly strike a deal, the Director of the United States National Economic Council, Larry Kudlow said “This is not time-dependent. This is policy- and enforcement-dependent.”

Economic news was largely negative for the week as new releases on housing starts and consumer spending fell below analyst estimates. Fourth quarter GDP was revised down 0.4% to a 2.2% annualized pace, bringing the 2018 GDP growth rate to 3%. In other market news, SOFR was relatively well behaved at quarter-end, when compared to the dislocations that took place at the turn of the year. The SOFR volume weighted median for March 29th was reported to be 2.65% on roughly $900 billion in volume, a 22 basis point increase in rate from the day prior.

The Look Forward

Market participants will be looking forward to updated figures on retail sales, construction spending, the ISM manufacturing index and the March jobs report. U.S. and Chinese trade officials meet in Washington this week to continue trade negotiations.

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. 19-0089

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