Prior week summary
Global equities marched higher last week pushing aside fears of a global slowdown as the U.S. and China reached an agreement, in principle, on “phase one” of a trade deal and prospects for a Brexit deal gained new life. After a rocky start to the week, where reports suggested a Chinese delegation, scheduled to meet with U.S. officials in Washington, would leave negotiations earlier than anticipated, the U.S. and China announced an agreement on “phase one” of a trade deal on Friday. China agreed to buy additional U.S. agricultural products in exchange for the U.S. calling off its implementation of an additional 5% tax on $250 billion of Chinese goods, set to take effect on October 15th. While the “phase one” deal has certainly suggested goodwill between the two sides, key sticking points, namely intellectual property issues, remain. Further boosting investor sentiment, the U.K. and E.U. have “agreed to intensive negotiations in the coming days.” Prime Minister, Boris Johnson, has made clear his intention to leave the E.U. by October 31st, but significant hurdles remain as roughly two-thirds of the U.K. Parliament are currently opposed to a break from the E.U.
In economic news, the Consumer Price Index and the Producer Price Index, fell below analyst expectations, further strengthening the case for a rate cut at this month’s FOMC meeting. Currently, the Fed Funds futures market is implying a 70% chance of a rate cut on October 30th. In attempts to maintain stability in the short-term funding markets, the Federal Reserve announced it will, “Purchase Treasury bills at an initial pace of approximately $60 billion per month, starting with the period from mid-October to mid-November,” and that it will continue, “At least into the second quarter of next year.”
The look forward
In a holiday-shortened week, market participants will be gearing up for a relatively light week of economic data including the release of updated figures on retail sales, housing starts, industrial production, and the Philly Fed Index, among others.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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