BMA Market Insights: Rates Steady Ahead of Holiday Break


After another strong bull week in markets, U.S. equity futures are opening on average +0.20% higher this morning while USD rates are mostly unchanged. The 10-year U.S. Treasury note is steady and relatively unchanged from last Friday’s close at 1.915%. Expect lower liquidity and thin trading this week as many market participants take off the remainder of the year. U.S. Fixed income markets will close early on Tuesday at 2 PM EST and all of  Wednesday in observance of Christmas Day.

Last week, markets crept higher after factory output data rebounded in November showing a 1.1% rise in industrial production. New home construction permits beat expectations and climbed to a 12-year high. With NAFTA 2.0 and the U.S.-China phase-one of trade negotiations mostly behind us, Boston Federal Reserve President, Eric Rosengren, called the economy “well-positioned for 2020”, though Dallas Fed President, Robert Kaplan, was less optimistic, he noted that consumer spending (nearly 70% of U.S. GDP) remains strong.

U.S.-China Trade War

  • Over the weekend, China announced plans to cut tariffs on Pork, Technology, and other items from a list worth nearly $389 billion beginning January 1, 2020. 
  • Phase-one of the U.S.-China trade deal is now verbally complete and undergoing technical and legal review.
  • The trade deal will be signed and released in early January according to U.S. Treasury Secretary Steven Mnuchin. 
  • The following is on the docket:


  • The December 15th tariff on $160 billion worth of Chinese goods, including cell phones, laptop computers, toys, and clothing, will not go into effect.
  • China canceled its retaliatory tariffs, including a 25% tariff on autos manufactured in the U.S.
  • The September 1 tariff on $120 billion worth of Chinese goods will be cut in half to 7.5%.
  • The U.S. tariffs on 25% on $250 billion worth of Chinese merchandise will remain unchanged (likely the carrot for phase-two of trade negotiations next year.)

Trade and Agriculture

  • China has agreed to increase purchases of U.S. products and services by at least $200 billion over the next two years.
  • China has agreed to increase purchases of U.S. agriculture products by $32 billion over two years, an average $16 billion in 2017.

Intellectual Property

  • China agreed to stronger legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.
  • China agreed to follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals and to eliminate any government advantages for such transfers.


China agreed to refrain from competitive currency devaluations and to not target its exchange rate for a trade advantage (language that China has accepted for years as part of its commitments to the G20 major economies.)

How will this agreement be enforced?

  • Bilateral consultations starting at the working level and escalating to top-level officials. If these consultations do not resolve disputes, there is a process for imposing tariffs or other penalties.
  • In comparison, the highlights of the October 11 mini-deal principles are as follows:
    • China will purchase up to $50billion in U.S. agricultural goods.
      • China previously purchased approximately $9 billion in 2018, down from $25.8bn in 2012. 
    • China will boost intellectual protection, primarily for small and medium businesses.
    • China will commit to currency changes.
      • The agreement over currency will likely mirror commitments already made with the International Monetary Fund (IMF) standards.
    • The U.S. will suspend additional tariffs.
      • Tariffs on $250 billion of Chinese goods were supposed to go into effect last Tuesday, October 15. 

Key events coming up this week:

  • U.S. jobless claims on Thursday.
  • China and Japan industrial production data on Friday as well as Japanese retail sales.
  • On Tuesday, Chinese Premier, Li Keqiang, will host a trade summit with Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-in in Chengdu, China.