Prior Week Summary
U.S. equity markets rebounded last week buoyed by better-than-expected corporate earnings results and U.S./China trade optimism. Corporate earnings season continues to roll on, and the results have been largely encouraging. While analysts have long-forecasted declines for second-quarter corporate earnings, roughly three quarters of the companies that have reported thus far have topped analyst profit expectations. Separately, the U.S. economy expanded at a 2.1% pace in the second quarter, topping consensus estimates calling for 1.8% growth.
In Europe, the European Central Bank opted to leave interest rates steady at the conclusion of their two-day policy meeting, but opened the door for a rate cut at the September meeting and hinted at the possibility for the resumption of their bond-buying program. Speaking after the policy meeting, ECB President Mario Draghi left little to the imagination when detailing his view of the Eurozone saying, “At the same time, the outlook is getting worse and worse. And it’s getting worse and worse in manufacturing especially. And it’s getting worse and worse in those countries where manufacturing is very important.” The market is placing just over an 80% chance on the ECB cutting rates at the September meeting. Elsewhere, Boris Johnson has been chosen to succeed Theresa May as Prime Minister. In his first speech as Prime Minister on Wednesday, Boris Johnson pledged to lead the U.K. “out of the EU on October 31, no ifs or buts.”
The Look Forward
Market participants are in for a busy week on both the economic and geopolitical fronts. All eyes will be on Friday’s release of the July non-farm payroll report. Updated figures on consumer spending, ISM Manufacturing, construction spending and factory orders also dot the economic calendar. The FOMC will hold its policy meeting this week with markets widely expecting a 25 basis point rate cut. U.S. and Chinese officials meet face-to-face in Shanghai for the first time since talks broke down in May.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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