Welcome back from an eventful Summer that saw global central banks call a monetary policy “audible” by lowering interest rates amidst volatile swings in equity and bond prices. The yield spread between the 2-year and 10-year U.S. Treasuries inverted, presenting opportunities for floating-rate borrowers to synthetically lock-in at lower rates. While we experienced large daily swings in the equities market, equities net increased since the start of the Summer as the prospect of lower rates and hopes of a U.S.-China trade resolution continue to fuel equity prices. See below:
| 31-May-19 | 30-Aug-19 | Change | |
| 2Y U.S. Treasury (%) | 1.930 | 1.505 | (0.43) |
| 10Y U.S. Treasury (%) | 2.135 | 1.500 | (0.64) |
| 2Y USD Swaps (%) | 1.974 | 1.513 | (0.46) |
| 10Y USD Swaps (%) | 2.088 | 1.385 | (0.70) |
| S&P 500 Index | 2752.060 | 2926.460 | 174.40 |
| Nasdaq Composite | 7453.150 | 7962.880 | 509.73 |
| Dow Jones Industrial Average | 24815.040 | 26403.280 | 1,588.24 |
U.S. equity futures pointing to a lower opening as tariffs imposed by both U.S. and China went into effect this past weekend. Offshore trading in the Chinese yuan fell to 7.2 per USD, its lowest level in nearly a decade. The British pound dipped below 1.20 per USD, the first since 2017, as current Prime Minister Boris Johnson threatens to call a general election rather than postpone a no-deal Brexit next month on October 31. The 2-year U.S. Treasury note is currently trading at 1.50% and 10-year trading at 1.493%.
Wednesday we have the Bank of England Governor Mark Carney discussing August’s inflation data and the U.K.’s economic relationship with the European Union. New York’s Fed, John Williams, is also scheduled to speak followed by Fed Chair, Jerome Powell, on Friday.
On the data front, Friday brings us the U.S. employment report, which is projected to show a 158,000 increase in non-farm payrolls. The unemployment rate is expected to remain unchanged at 3.7% with wages to show an annual rise of 3.0%.
See calendar below:
