Weekly Market Update – March 25, 2019

Last Week

  • U.S. yield curve moves closer to inversion. Following a dovish Fed and weaker than expected manufacturing data, interest rates moved lower across both the U.S. and Germany. The U.S. yield curve further flattened last week, with the 10-year Treasury yield (2.44%) just 12 basis points above the 2-year Treasury yield (2.32%) and even with the 3-month yield (2.44%).
  • Fed scales back rate hike forecasts in its March meeting. Following a pivot to a more patient stance in January, the Federal Reserve left policy unchanged in its meeting last week given subdued inflation and global economic growth concerns. Updated Fed official forecasts revealed a preference to keep interest rate policy unchanged for the rest of 2019 and hike one more time in 2020.
  • Growth concerns rise following weak Europe manufacturing data. Flash Purchasing Managers’ Index (PMI) data was released late last week, with below consensus manufacturing data across Europe and the U.S. Readings in Europe (47.6) and Germany (44.7) remain in contractionary (below 50) territory and were especially disappointing since many investors were looking for signs of a recovery.
  • The EU offers conditional seven-week Brexit delay. Following a ruling that her Brexit deal could not be voted on by UK parliament for a third time, UK Prime Minister Theresa May changed course and met with European Union (EU) leaders late last week. EU leaders agreed to extend the March 29 Brexit deadline to May 22 if the Brexit deal is passed by parliament or April 12 if the UK has no credible path forward on Brexit.

This Week

  • U.S.-China trade discussions set to continue. Trade officials from the U.S. and China will meet to discuss some of the more difficult issues such as the quantity of purchases by China and protection for U.S. intellectual property. U.S. President Donald Trump stated that the current tariffs are likely to stay in place for a substantial time period as China hasn’t adhered to previous deals.
  • Little change expected in global inflation data. Inflation data will be released this week in Germany and the U.S. Recent downward movement from Consumer Price Index (CPI) readings in the U.S. at headline and core levels may show a similar pattern for core Personal Consumption Expenditures (PCE). With the exception of last July and a few months in 2012, the Fed’s preferred inflation measure has failed to hit the 2% target consistently over the last decade.

 

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