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.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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