Prior week summary
U.S. equities rose for a fifth straight week, setting new all-time highs as U.S./China trade optimism and better-than-expected corporate earnings releases boosted sentiment and dulled recession fears. Market participants have grown increasingly optimistic in the last month over the prospects of the U.S. and China completing a phase-one trade deal by year-end and this week did little to alter the mood. Stocks and yields soared on Thursday after China’s Ministry of Commerce released a statement hailing the progress of trade negotiations saying, “In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” and noting, “If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement.” While the Trump administration denied reaching an agreement on the removal of tariffs, the 10-year Treasury yield ended the week just above 1.94%, the highest level since July, and Fed Funds futures imply that there is under a 10% chance for a rate cut at the December FOMC meeting. Although a location has yet to be named, reports suggest that President Trump and President Xi will move their planned signing summit to December as the two sides work toward finalizing an agreement.
In a relatively light week for economic data, the results were mixed. U.S. productivity fell well below expectations in the third quarter, contracting 0.3%, the gauge’s first decline since 2015 and significantly lower than the second quarter’s 2.5% pace. On the other hand, the ISM Non-Manufacturing Index and a consumer confidence measure surprised to the upside, and third-quarter corporate earnings continued to impress in aggregate. A number of Fed officials participated in scheduled speaking engagements throughout the week. Notably, Federal Reserve Bank of Chicago President, Charles Evans, suggested that the U.S. economy is well-positioned after the FOMC’s third rate cut of the year saying, “We’ve made a nice adjustment that takes account of risk management concerns. The setting of policy is good for the real risks that the economy is facing. It’s good for getting inflation to 2%.”
The look forward
Market participants are gearing up for a busy week of economic data with retail sales, the Consumer Price Index, the Producer Price Index, the Empire Manufacturing Index and industrial production figures all set for release. A host of Federal Reserve officials will speak, most notably, Federal Reserve Chair, Jerome Powell, who addresses the Joint Economic Committee of Congress on Wednesday and the House Budget Committee on Thursday.
Market implied policy path (Overnight indexed swap rates)
Fixed income snapshot
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