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