Prior Week Summary
In an unexpected escalation of the U.S. / China trade spat, the Trump administration increased tariffs on $200 billion of Chinese goods to 25%, sending U.S. equities lower and dragging the S&P 500 down to its worst week of the year. Amid the rise in tensions, the two sides met in Washington last week to continue negotiations. Unhappy with a lack of concessions by China, U.S. trade officials threatened to impose tariffs on all Chinese goods if a deal is not finalized over the next month. Despite the reignition of the trade dispute, President Trump continued to remain hopeful for a deal after Friday’s talks saying, “The relationship between President Xi and myself remains a strong one, and conversations into the future will continue.”
In a light week for economic data, market participants saw the release of two inflation measures, both of which fell below consensus estimates. Speaking on the inflation outlook at a talk on Tuesday, the Vice Chair of the Federal Reserve for Supervision, Randal Quarles, argued that a rate of inflation near, yet below the Federal Reserve’s 2% target is acceptable saying, “I don’t share the concern, that some have, that if we’re at 1.8% inflation for a significant period of time, that this is a problem that needs to be fixed. From my point of view, 1.8 is 2.”
The Look Forward
Aside from U.S. China trade negotiation developments, market participants will be looking forward to the release of updated figures on retail sales, industrial production and the Empire Manufacturing survey. Additionally, a host of Federal Reserve officials, including Federal Reserve Chairman Jerome Powell, have scheduled speaking engagements this week.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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