Prior week summary
The major U.S. equity indices ended the week mixed yet little-changed from the week prior as trade worries were countered by impressive U.S. economic data. Beginning the week on rocky footing, equities moved lower when the Trump administration reinstated tariffs on Brazilian and Argentinian steel and aluminum on Monday morning. The mood turned further sour when the ISM Manufacturing Index reported that the U.S. manufacturing sector remained in contraction territory for the fourth consecutive month, and construction spending fell well below consensus estimates.
Trade pessimism drove sentiment throughout much of the week as the Trump administration signaled a harsher stance against China and President Trump said, “I have no deadline,” when asked about a potential timeline for a phase-one trade deal signing. Director of the United States National Economic Council, Larry Kudlow, echoed President Trump’s comments and suggested that the tariffs scheduled to take effect on December 15 are still on the table for negotiation saying, “There’s no arbitrary deadline here… but the fact remains December 15 is a very important date with respect to a no-go or go on tariffs. It’s going to be totally up to POTUS. But December 15th is an important date.” Additionally, Kudlow indicated that plans to hold a phase-one signing summit in the near-term have been shelved as the two sides continue to negotiate the terms of a deal, “None of those decisions have been made… let’s get a deal first and then we’ll figure out how, when, and where they’ll do the signing.” The major U.S. equity indices recovered most, if not all, of their early week losses by the end of the week driven by better-than-expected updates on factory orders, a consumer confidence measure, and most importantly, a non-farm payroll report that indicated that the U.S. economy added 266,000 jobs last month, far surpassing analyst estimates and working to lower the unemployment rate to 3.5%, a 50-year low.
The look forward
Market participants will be looking forward to the release of updated figures on the Consumer Price Index, the Producer Price Index, and retail sales, among others. The FOMC meets on Tuesday and Wednesday and is widely expected to leave the target range unchanged at 1.50% -1.75%. The U.K. holds elections on Thursday.
Market implied policy path (Overnight indexed swap rates)
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