U.S., China to Resume Talks

July 1, 2019 Chatham Financial

Prior Week Summary

In a busy week on the geopolitical front, Presidents Trump and Xi agreed to resume trade negotiations at the conclusion of their highly-anticipated meeting on the sidelines of the G-20 summit this weekend, ending a near two-month impasse. The U.S. agreed to ease restrictions on Chinese telecommunications giant, Huawei, and hold back from levying additional tariffs on Chinese goods. In exchange, the Chinese government has agreed to purchase an unspecified quantity of U.S. agricultural products. Speaking on the meeting, President Xi reiterated China’s willingness to negotiate saying, “China is sincere about continuing negotiations with the United States… but negotiations should be equal and show mutual respect.” Additionally, President Trump met with North Korean leader Kim Jong Un at an impromptu meeting at the DMZ, the first meeting between the two leaders since talks broke down at the Hanoi Summit in late February. After an hour-long meeting, Trump and Un agreed to resume denuclearization negotiations, although a timeline for a deal remains unclear.

On the economic data front, investors were largely disappointed as new home sales, durable goods orders, wholesale inventories, and consumer spending all fell below analyst expectations. The third estimate for first-quarter GDP held steady at 3.1%, accelerating from the 2.2% pace seen in the fourth-quarter of 2018.

The Look Forward

In a holiday-shortened week, market participants will be looking forward to the release of updated figures on the ISM Manufacturing Index, construction spending, factory orders, and durable goods orders, among others. Notably, Friday brings the release of the June non-farm payroll report. After a disappointing May jobs report that saw the addition of 75,000 jobs, consensus estimates are calling for 160,000 jobs in June. U.S. markets are closed on Thursday for the Fourth of July holiday.

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. 19-0178

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