Trump Raises the Stakes

June 17, 2019 Chatham Financial

Prior Week Summary

In a relatively quiet week, U.S. equity markets notched a second straight week of gains as investor optimism over the U.S./Mexico border agreement outweighed lingering trade concerns. In an apparent escalation of trade tensions, President Trump offered Chinese President Xi Jinping an ultimatum—meet with him at the G-20 summit later this month in Osaka, Japan, or face higher tariffs. Trade negotiations between the two sides have broken down in recent weeks, but many market participants hope the expected meeting between Trump and Xi can produce a breakthrough that could bring the U.S. and China back to the negotiating table. Speaking to reporters on Monday, President Trump signaled an indifference toward the meeting saying, “We’re expected to meet and if we do that’s fine, and if we don’t—look, from our standpoint the best deal we can have is 25% on $600 billion.” As we head to print, Chinese government officials are yet to confirm whether President Xi plans to attend the meeting.

Inflation data released last week showed that price pressures continue to remain muted as yearly readings for both the Consumer Price Index and the Producer Price Index fell below consensus estimates. Separately, the May retail sales report was viewed as largely positive with 11 of the 13 major categories posting gains.

The Look Forward

All eyes will be on the FOMC as the committee holds its 2-day policy meeting this week. While rates are expected to remain steady, the Fed Funds futures market is implying a nearly 20% chance of a rate cut on Wednesday. The Bank of England makes its decision on the course of U.K. monetary policy on Thursday. Additionally, market participants will get updated figures on housing starts, existing home sales, and the Empire Manufacturing Survey, among others.

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. 19-0166

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