The Weekly Update

Last week’s mix of political disruptions and further weak data helped push US 10-year Treasury yields down 4 basis points to close out the week back below 1.5%. This marks the fifth consecutive week of Treasury and broader high-grade bond gains, with 14 of the last 17 weeks marking falling Treasury yields. Last week however equities were also up, with the S&P 500 posting a 2.8% rally after poor performance in all the earlier weeks of August.

Last week the feud between Trump and the Fed was further ignited when former New York Fed President wrote a passionately critical op-ed of Trump’s policies whilst suggesting that the Fed is unable to remain independent under such an Administration and therefore should work within its powers to frustrate a second term of Trump Presidency. Despite the immediate rejection of Dudley’s comments by the Fed, President Trump continued throughout the week to criticise the Fed “calling it wrong for too long” and went as far as to describe Powell as an “enemy” on Twitter. Not content with keeping just the Fed on its toes, Trump followed through with his latest round of 15% tariffs on a further $110 billion of Chinese imports starting on the 1st September, which will be followed up in mid-December with the remainder of the targeted $300 billion in tariffs.

Also somewhat divisive was UK Prime Minister Boris Johnson’s decision last week to prorogue parliament for five weeks in an attempt to prevent the Commons debating or frustrating a potential no-deal Brexit. Expect further developments on this front in the week ahead as key Members of Parliament attempt to return drastic measure for drastic measure as the (latest) deadline approaches.

Italy, however, caught a reprieve after Matteo Salvini withdrew his drive for a snap election helping the 5-Star Movement’s Giuseppe Conte stay as Prime Minister and Italian bonds to rally; the 10-year BTPS yields closed the week below 1%, well down from 1.8% three-weeks prior.

This week begins with manufacturing PMI data across China, Eurozone, Germany, France and UK on Monday with the US on Tuesday, with it being Labor Day on Monday. Also on Tuesday is the Reserve Bank of Australia rate decision, Australia retail sales and the Eurozone producer price index. The corresponding services and composite PMI data for US, China and the Eurozone are out on Wednesday, as is Eurozone retail sales and the US trade balance and Fed Beige Book. Thursday sees US and Germany factory orders with hopes that they pick up from recent weakness, and on Friday focus will be US non-farm payrolls, Eurozone GDP, Germany industrial production and France trade balance.

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