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.

 


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. 19-0205

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