Prior week summary
The rally in U.S. equities showed no signs of stopping last week as the three major U.S. equity indices rose for a sixth straight week, each setting new all-time highs amid perceived progress in U.S./China trade negotiations. News on the trade front has been the primary driver of investor sentiment over the last month, and this trend continued last week. The Trump Administration denied the Chinese assertion that the two sides agreed to tariff reductions as part of a phase-one trade deal, but nonetheless hailed progress in talks throughout the week signaling that negotiations are in the final stages. Speaking to reporters on Thursday, White House economic adviser Larry Kudlow said of the trade deal, “We are coming down to the short strokes,” and emphasized that the U.S. is “in communication with them every day.” Commerce Secretary Wilbur Ross reiterated Kudlow’s message on Friday saying, “The devil is always in the details and we’re down to the last details now,” and indicated that discussions between high-level officials took place on Friday over the phone. A tentative meeting between Presidents Trump and Xi to discuss trade and potentially sign the phase-one trade deal is set for December at a to-be-determined venue.
Federal Reserve Chair, Jerome Powell, had a busy week on Capitol Hill speaking to both the Joint Economic Committee of Congress and the House Budget Committee. Powell hailed the position of the U.S. economy saying, “The U.S. economy is the star economy these days. There is no reason to think that I could see that the probability of a recession is at all elevated at this time.” Asked if the Fed would remain on hold through 2020, Powell responded, “If new data prompted a reassessment of the outlook, the Fed would act appropriately.” The Fed Funds futures market implies that there is under a 1% chance that the FOMC decides to move the target range at the December meeting. Economic data released during the week painted a mixed picture. Updated inflation data suggested that inflationary pressures continue to remain muted as the Core CPI rose 0.2% in October and 2.3% over the last year. Retail sales for October rebounded from the dismal September reading, expanding at a 0.3% pace, but industrial production contracted 0.8%, well below consensus expectations.
The look forward
In a quiet week for economic data releases, market participants will be looking forward to updated data on the housing sector as October housing starts, building permits, and existing home sales dot the economic calendar. The Federal Reserve releases the minutes from the October FOMC meeting on Wednesday.
Market implied policy path (Overnight indexed swap rates)
Fixed income snapshot
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