Prior Week Summary
The major U.S. equity indices moved higher for a second straight week as U.S./China trade war optimism outweighed concerns of a slowing U.S. economy. U.S. and Chinese officials announced plans to hold face-to-face meetings in Washington in “early October”, a welcomed development by many investors as the trade war has intensified in recent weeks with harsh rhetoric and additional tariffs. Separately, the Trump administration denied Beijing’s request to suspend the tariffs implemented on September 1st.
On the U.S. economic data front, releases for the week were mixed. The August jobs report indicated that the U.S. economy added 130,000 jobs in August, far below the consensus estimate of 160,000 additions. The weak jobs figures dampened investor sentiment further after the ISM Manufacturing Index released Tuesday suggested that manufacturing activity contracted in August and posted its lowest reading in nearly three years. Wednesday’s release of the ADP employment report served as a bright spot after reporting business payrolls added 195,000 jobs in August, the most in four months. Federal Reserve Chairman, Jerome Powell, reinforced the market’s expectation of a September rate cut while speaking in Zurich on the economic outlook saying, “Our main expectation is not at all that there will be a recession,” but that, “We’re going to act as appropriate to sustain this expansion.” Fed Funds futures indicate a 100% probability of a rate cut on September 18th with just under a 5% chance of a 50 basis point reduction.
In the U.K., Parliament voted to block a no-deal Brexit, forcing Prime Minister, Boris Johnson, to ask the E.U. for an extension of the October 31st deadline if a new deal is not approved by October 19th. In Hong Kong, Carrie Lam, Chief Executive of Hong Kong, withdrew the extradition bill that sparked weeks of protests. The move did little to assuage the protestors however, with Lam noting, “It’s obvious to many of us the discontentment in society extends far beyond the bill. We can discuss all these deep-seated issues in our dialogue platform to be established.”
The Look Forward
Market participants will be gearing up for a fairly busy week of economic releases with CPI topping the list along with PPI, retail sales, and wholesale inventories, among others.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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