Prior week summary
In a holiday-shortened week, U.S. equities returned to their winning ways as the three major U.S. equity indices climbed to record highs amid solid U.S. economic data and U.S./China trade optimism. Investor sentiment received a boost early in the week as China announced plans to limit intellectual property theft by both broadening the definition and increasing the penalties around intellectual property theft, a central topic of discussion in trade negotiations. To the delight of many market participants, U.S. and Chinese officials held discussions over the phone on Tuesday. After the call, the Chinese Ministry of Commerce released a statement indicating that trade officials “reached consensus on properly resolving relevant issues,” and President Trump suggested that the two sides are “in the final throes” of a phase-one agreement. Trade optimism cooled later in the week, however, after President Trump signed a bill supporting the protestors in Hong Kong and the Chinese Foreign Ministry promised “strong countermeasures” in response to the passing of the U.S. bill.
On the economic data front, the second estimate of third-quarter GDP indicated that the U.S. economy grew at a 2.1% pace, above the 1.9% reading from the initial estimate last month. Separately, October's new home sales, consumer spending, and durable goods orders topped consensus estimates, but the Conference Board Consumer Confidence Index fell below analyst expectations. Federal Reserve Chair Jerome Powell spoke in Rhode Island on Monday evening and expressed great optimism about the outlook for the U.S. economy saying, “At this point in the long expansion, I see the glass as much more than half full. With the right policies, we can fill it further, building on the gains so far and spreading the benefits more broadly to all Americans.” Consistent with his Congressional testimony, Powell reiterated that a “material” shift from the current economic outlook is required to move the target range. In the U.K., polling suggests that Prime Minister Boris Johnson’s Conservative Party will win a majority in Parliament after the December 12 election. Johnson has expressed a desire to bring a new Brexit deal to Parliament before Christmas.
The look forward
Market participants are gearing up for a busy week of economic releases as updated figures on the ISM Manufacturing Index, construction spending, factory orders, and the November non-farm payroll report, among others, dot the economic calendar.
Market implied policy path (Overnight indexed swap rates)
Fixed income snapshot
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