Trump Levies More Tariffs

August 5, 2019 Chatham Financial

Prior Week Summary

U.S. equity markets suffered one of the worst weeks of losses since the December selloff on the back of Jerome Powell’s hawkish statements and President Trump’s re-escalation of trade tensions with China. The FOMC opted to cut the target range 25 basis points to 2% - 2.25%, marking the central bank’s first negative policy adjustment in nearly eleven years. The rate cut came as no surprise, but many market participants were caught off-guard by Jerome Powell’s relatively hawkish tone in his statement following the FOMC’s decision. Speaking on the FOMC’s decision to cut the target range, Powell noted that, “We’re thinking of it as essentially in the nature of a mid-cycle adjustment to policy,”and that, “It’s not the beginning of a long series of rate cuts.” Notably, two members of the FOMC, Esther George and Eric Rosengren, voted to leave rates untouched, citing low unemployment and budding inflationary pressures.

President Trump jarred markets on Thursday afternoon tweeting that his administration would levy 10% tariffs on the last $300 billion of untaxed Chinese goods beginning on September 1st. On Friday, Foreign Ministry spokeswoman, Hua Chunying, suggested China planned to retaliate in response to Trump’s latest plans saying, “If the U.S. is going to implement additional tariffs, China will have to take necessary countermeasures. China won’t accept any maximum pressure, threat, or blackmailing, and won’t compromise at all on major principal matters.” Keeping their promise, China allowed the yuan to fall to its weakest level in over a decade on Monday morning and announced that state-owned companies will suspend U.S. agricultural imports. Trade negotiations between the two sides are set to continue in Washington in early September.

The Look Forward

In a light week for economic data, market participants will be awaiting the release of updated figures on the ISM Non-Manufacturing Index, wholesale inventories, and the Producer Price Index. The Federal Reserve’s Brainard, Bullard, and Evans each have speaking engagements throughout the week.

Rates Snapshot

Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.

 

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 https://www.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. 19-0198

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