Trade War Escalates

August 26, 2019 Chatham Financial

Prior Week Summary

U.S. equities looked poised to snap a streak of weekly losses until an escalation of the U.S./China trade war on Friday roiled markets and sent the S&P 500 to its fourth straight week of declines. China announced plans early Friday morning to levy 5% - 10% on tariffs on $75 billion of US goods starting on September 1st. In addition, China will resume a 25% tax on U.S. automobiles beginning December 15th. In retaliation, the Trump administration announced plans to increase levies on $550 billion of Chinese goods by 5%. The news of a U.S. response came moments after Federal Reserve Chairman, Jerome Powell, delivered prepared remarks on the challenges facing monetary policy to kick off the annual Economic Policy Symposium in Jackson Hole, Wyoming. In his speech, Powell spoke to the “significant risks” facing the global economy noting, “We have seen further evidence of a global slowdown, notably in Germany and China. Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government.” Powell did little to push back on the market’s expectation of a 25 basis point cut at the September FOMC meeting, but two of his FOMC colleagues, Esther George and Eric Rosengren, expressed opposition to further policy adjustments. Speaking to Bloomberg, Esther George remarked, “As I look at where the economy is, it’s not yet time, I’m not ready, to provide more accommodation to the economy without seeing an outlook that suggests the economy is getting weaker.”

The Look Forward

Trade developments will be top-of-mind for markets participants this week as the potential for continued escalation has seemingly increased. A number of market-moving economic releases dot the economic calendar this week, notably the second estimate of second-quarter GDP and July consumer spending.

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. 19-0210

Previous Article
U.S. Equities Take a Breath
U.S. Equities Take a Breath

The major U.S. equity indices advanced last week, notching their first weekly gains since late July as a re...

Next Article
Global Outlook Darkens
Global Outlook Darkens

U.S. equities suffered their third straight week of declines last week as the flight to safe-haven assets t...

×

Subscribe to Chatham's Weekly Market Insights

First Name
Last Name
Company Name
!
Thank you!
Error - something went wrong!