Prior Week Summary
Despite disappointing economic data and fears of a global slowdown, U.S. equity markets continued to march higher, extending the rally that has propelled markets upward since the turn of the year. While U.S. economic data was largely negative last week with updated figures on the manufacturing sector, durable goods orders, and existing home sales all falling below consensus estimates, dovish sentiment from the Federal Reserve coupled with perceived progress in U.S.-Chinese trade negotiations proved enough to lead markets higher.
Minutes from the Federal Reserve’s January meeting indicated that Fed officials expect to halt the reduction of the Fed’s balance sheet later this year, noting that officials found it necessary to “announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year.” The Fed Minutes also revealed that the Federal Reserve continues to have a slight bias toward raising rates with a number officials sharing sentiment that “if the economy evolved as they expected, they would view it as appropriate to raise the target range for the federal funds rate later this year.”
U.S.-China trade negotiations continued in Washington last week as top officials worked to hammer out a preliminary agreement that would help set the stage for a Trump-Xi summit. The timeline for the completion of a deal and an end to the trade war remains unclear, but on Sunday evening, President Trump, citing “substantial progress” in the trade negotiations, indicated that he would extend the trade-truce beyond March 1st.
The Look Forward
As we enter the final week of February, market participants will be looking forward to updated figures on housing starts, consumer spending, and fourth-quarter GDP. Additionally, a host of U.S. Treasury auctions are taking place, ranging from 3-month Treasury Bills to 7-year Treasury Notes.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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