Trade fears, impeachment inquiry shake markets

September 30, 2019 Chatham Financial

Prior Week Summary

The major U.S. equity indices moved lower for a second straight week as trade uncertainty, mixed U.S. economic data, and political turmoil in Washington weighed on investor sentiment. Early in the week, Treasury Secretary, Steven Mnuchin, gave markets a boost when he indicated that U.S. and Chinese officials still planned to meet in early October in Washington. In a show of goodwill, China agreed to waive retaliatory tariffs on approximately three million tons of U.S. soybeans, but President Trump soured market participants' hopes of easing tensions in his U.N. address saying, “Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale.” Markets were further disrupted by increasing political drama, when the Speaker of the House of Representatives, Nancy Pelosi, called for a formal impeachment inquiry after a whistleblower complaint raised concerns about President Trump’s use of power on a July phone call with President Volodymyr Zelensky of Ukraine.

On the U.S. economic front, data releases for the week were largely mixed. The third estimate of Q2 GDP indicated that the U.S. economy grew at a 2% pace, in line with expectations, but down from the first quarter’s 3.1% pace. New home sales topped analyst estimates suggesting a strong housing market after the August readings for existing home sales and housing starts also beat consensus estimates earlier in the month. The Conference Board Consumer Confidence Index fell far below expectations as did the latest consumer spending figures, raising questions about the health of the U.S. consumer.

The Look Forward

Market participants will be turning their attention toward Friday’s release of the September employment report, as well as updated figures on construction spending, factory orders, durable goods orders, and the ISM Manufacturing Index, among others. A host of Fed officials have scheduled speaking engagements this week, including Federal Reserve Chairman, Jerome Powell, who speaks at a “Fed Listens” event on Friday.

Rates Snapshot

 

Market Implied Policy Path (Overnight Indexed Swap Rates)

Source: Chatham Financial

 

Fixed Income Snapshot

Source: Bloomberg Finance L.P.

Disclosures

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal/notices/.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 19-0247

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