Source: US Dept. of Treasury End of Day
• Trade tensions with China are creating greater uncertainty in both the equity and fixed income markets resulting in increased volatility. Following President Trump’s announcement last week of new tariffs on imports from China, the Chinese government allowed its currency to weaken against the dollar, prompting Trump to accuse China of being a currency manipulator. The increased tension plunged Treasury 10-year yields to 1.61%, the lowest since the fall of 2016.
• Global economies are showing the economic strain from the growing trade tensions. The Federal Reserve is deeply concerned over the negative feedback these adverse global developments could have on the U.S. economy. The probability of a 25-basis point cut at the Fed’s September meeting is now trading at 100%.
• Employment and job openings continue to hold up well. Claims for unemployment are close to 50-year lows indicating that the employment market continues to be relatively strong. There is one more employment report before the Fed’s September meeting, and the market will be watching closely for any weakness that could prompt the Fed to cut by more than the expected 25 basis points.
