Prior week summary
The six-week rally in U.S. equities came to a halt last week as pessimism over the prospects of a U.S./China trade deal dominated headlines and soured investor sentiment. After a solid start to the week, equities and yields turned lower when a Reuters report suggested that a U.S./China phase-one trade deal signing may slip into the new year as the two sides continue to negotiate the stickiest aspects of the deal. Further complicating matters, the U.S. House and Senate expressed near-unanimous support for the protestors in Hong Kong passing a bill aimed at ensuring Hong Kong’s autonomy from the Chinese government. While China “firmly” opposes the bill and has called the actions of Congress a violation of international law, President Trump is expected to sign the bill in the coming days despite the potential trade ramifications for doing so. Delivering prepared remarks on Friday, President Xi stressed the importance of “mutual respect” in negotiations and signaled a willingness to work with the U.S. saying, “We didn’t initiate this trade war and this isn’t something we want. When necessary, we will fight back, but we have been working actively to try not to have a trade war.” Ending the week on a positive note for negotiations, Chinese Vice Premier Liu He has reportedly invited U.S. Trade Representative Robert Lighthizer to Beijing for face-to-face negotiations later this month.
In a rare meeting between the President of the United States and the Federal Reserve Chair, President Trump and Jerome Powell met at the White House on Monday. After the meeting, President Trump indicated on Twitter that, “Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength and its effects on manufacturing, trade with China, E.U. and others, etc.” The Federal Reserve was quick to release a statement following the meeting stressing that Powell’s comments were, “Consistent with his remarks at his congressional hearings last week.” The FOMC minutes released on Wednesday further reinforced the notion that changes to monetary policy have been placed on hold noting that the current position of the target range, “Would be well calibrated to support the outlook of moderate growth, a strong labor market, and inflation near the Committee’s symmetric two percent objective and likely would remain so as long as incoming information about the economy did not result in a material reassessment of the economic outlook.” On the economic front, housing starts and existing home sales fell below analyst expectations, but October building permits and a consumer confidence measure topped consensus estimates.
The look forward
In a holiday-shortened week, market participants will be looking forward to the release of updated figures on new home sales, durable goods orders, consumer spending, core inflation, and Q3 GDP. Federal Reserve Chair Jerome Powell speaks on Monday. The Federal Reserve releases the final Beige Book of the year on Wednesday.
Market implied policy path (Overnight indexed swap rates)
Fixed income snapshot
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