Prior week summary
Trade news dominated headlines and drove the major U.S. equity indices higher last week as the U.S. and China reached an agreement, in principle, on the terms of a phase-one trade deal. The agreement will see the U.S. suspend the tariffs that were set to take effect on December 15, as well as, reduce the existing 15% tariffs on $120 billion of Chinese goods by half. In return, China has agreed to increase purchases of U.S. agricultural products and to make commitments on issues related to forced technology transfer and intellectual property. U.S. Trade Representative Robert Lighthizer said that he expects the deal to be signed in Washington in January and anticipates that the deal will come into effect a month later. Speaking on Twitter after the announcement of the deal, President Trump appeared eager to begin the second phase of negotiations saying, “…The Penalty Tariffs set for December 15 will not be charged because of the fact that we made the deal. We will begin negotiations immediately, rather than waiting until after the 2020 Election. This is an amazing deal for all. Thank you!”
The FOMC unanimously opted to leave the target range unchanged at 1.50% 1.75% at the conclusion of their two-day policy meeting on Wednesday and signaled that the target range is likely to remain unchanged through 2020. In a statement released after the meeting, the FOMC said, “The committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2% objective.” The Federal Reserve also announced plans on Thursday to conduct $365 billion of term repurchase operations over the final weeks of December in an attempt to maintain control of short-term interest rates during an expected year-end liquidity crunch. In the U.K., Prime Minister Boris Johnson’s Conservative Party gained a substantial majority in Parliament after Thursday’s election, setting the stage for the U.K. to leave the E.U. early next year. Speaking after this party’s victory, Boris Johnson indicated that he has his eye on a January 31, 2020 exit date and that he will, “get Brexit done… no ifs, no buts, no maybes.”
The look forward
Market participants are gearing up for a busy week of economic data releases as updated figures on the Empire Manufacturing Index, housing starts, industrial production, existing home sales, and third-quarter GDP, among others, dot the economic calendar.
Market implied policy path (Overnight indexed swap rates)
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