Market Waits for Fed
Prior Week Summary
Despite mixed economic data and Brexit concerns, U.S. equity markets marched higher last week, rebounding from sharp declines the week prior. With a Brexit deadline scheduled for March 29th, the U.K. Parliament voted against a “no-deal” Brexit and in favor of a delay last week, setting the stage for a third, crucial vote on the Brexit proposal early this week. U.K. Prime Minister Theresa May indicated that if no deal was agreed upon after the next vote, she would ask the E.U. for a lengthy extension, which requires unanimous approval by the E.U. Member States.
In economic news, inflation remained muted as consumer prices rose 1.5% year-over-year, falling below both analyst estimates and the Federal Reserve’s 2% target. Updated figures on industrial production, the Empire Manufacturing survey, and producer prices all fell below consensus estimates, but durable goods orders, construction spending, consumer sentiment and retail sales numbers topped analyst estimates.
A Trump-Xi signing summit looks to be on-hold until at least April, as the two countries continue to hammer out the details of a trade deal. Investors were encouraged late in the week by reports from Chinese state media that “The two sides have further made concrete progress on the text of the trade agreement between the two sides.”
The Look Forward
Aside from Brexit developments, market participants will be awaiting updated figures on factory orders, durable goods orders, existing home sales and wholesale inventories. The FOMC meets Tuesday and Wednesday and is widely expected to hold rates steady, as market participants are not pricing in a move in the Fed Funds target range, up or down, through the January 2020 meeting. Additionally, $48 billion of 3-month Treasury Bills, $39 billion of 6-month Treasury Bills, and $11 billion of 10-year TIPS head to auction.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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