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