Global Outlook Darkens

August 19, 2019 Chatham Financial

Prior Week Summary

U.S. equities suffered their third straight week of declines last week as the flight to safe-haven assets took center stage sparked by weak global economic data and ongoing concerns about the U.S./China trade war. After data showed that the German economy contracted in the second quarter, and Chinese industrial production measures fell below consensus estimates, the 2-year – 10-year treasury spread briefly inverted precipitating a sell-off in U.S. equities that saw one of the largest one-day drops of the year. Last week also brought a busy week’s worth of U.S. economic releases that painted a mixed picture of the U.S. economy. Retail sales, core CPI, and the Empire Manufacturing Index topped expectations, but measures of industrial production, housing starts, and consumer confidence fell below analyst expectations.

Many market participants welcomed the Trump administration’s announcement of plans to move the implementation of a 10% tax on a large swath of Chinese goods in the $300 billion pool past September 1st to December 15th. The news came after the U.S. Trade Representative, Robert Lighthizer, and Treasury Secretary, Steven Mnuchin, spoke with Chinese Vice Premier, Liu He over the phone on Tuesday. The two sides agreed to hold another phone call in two weeks and are still scheduled to meet face-to-face in early September in Washington, although President Trump has suggested a possibility that the U.S. will call the talks off in recent weeks. In a promising sign for trade negotiations, China indicated a willingness to negotiate on Friday saying, “We hope the U.S. side will meet China half-way, and implement the consensus reached by the two leaders during their meeting in Osaka, and look for mutually acceptable solutions through dialogue on the basis of equality and mutual respect.”

The Look Forward

In a light week for economic releases, market participants will be awaiting news emerging from the annual Economic Policy Symposium in Jackson Hole, Wyoming. Federal Reserve Chairman, Jerome Powell, speaks on the challenges facing monetary policy on Friday morning.

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.



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