Fed Offers Patience
Prior Week Summary
The equity markets moved broadly higher last week, largely on U.S.-China trade optimism, and dovish sentiment from Fed officials. U.S. and Chinese officials met over three days in an attempt to end the ongoing trade war. The two countries agreed to meet again later this month to further talks with higher-level officials. A host of Fed officials spoke over Wednesday and Thursday, most notably Federal Reserve Chairman, Jerome Powell. Speaking on the direction of the Fed policy path at the Economic Club of Washington D.C. on Thursday, Powell said, “You should anticipate that we’re going to be patient and watching, and waiting and seeing.” As of this writing, market participants are not pricing in any hikes through January 2020.
In economic news, inflation data released Friday revealed that headline inflation rose 1.9% year-over-year. While in line with consensus estimates, it falls below the Federal Reserve’s 2% target, reinforcing the notion that the Federal Reserve will employ a “wait and see” policy in regards to the direction of Fed policy. Additionally, both the ISM non-manufacturing index and initial jobless claims fell below estimates to 57.6 and 216,000 respectively.
The Look Forward
As the longest government shutdown in U.S. history continues, market participants are looking forward to updated data on manufacturing, consumer confidence and the trade balance. Additionally, $39 billion in 3-month Treasury Bills, $36 billion in 6-month Treasury Bills, and $13 billion in 10-year TIPS are going to auction this week.
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
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